Faculty of Civil Engineering

Lecture notes for

MANAGEMENT IN
CONSTRUCTIONS I
Management I

Contents
Management – general considerations ........................................................................................ 4
Etymology .............................................................................................................................. 4
Definitions .............................................................................................................................. 5
Importance of Decision Making in Management ..................................................................... 6
Seven Steps in Decision-Making ............................................................................................ 7
Characteristics of a good manager ............................................................................................ 13
Types of Management Skills ................................................................................................. 13
Definitive characteristics of work managers .......................................................................... 14
Management Styles .................................................................................................................. 18
What is a management style? ................................................................................................ 18
Types of management styles ................................................................................................. 18
Organizations – general considerations ..................................................................................... 27
The concept of organization .................................................................................................. 27
Classification of organizations .............................................................................................. 28
Organizational structure ........................................................................................................ 30
Management of the construction activity .................................................................................. 38
Objectives of Construction Management............................................................................... 39
Functions of Construction Management ................................................................................ 39
The Construction Project ...................................................................................................... 41
Construction Projects Participants ......................................................................................... 44
Competition and price formation in construction ...................................................................... 47
Types of competition: ........................................................................................................... 48
Production cost ..................................................................................................................... 49
Types of cost ........................................................................................................................ 50
Minimize cost ....................................................................................................................... 51
Price formation in a market with perfect competition ............................................................ 51
Price formation in markets with imperfect competition ......................................................... 53
Elements of Construction Industry Prices.............................................................................. 55
Organizing tenders for construction projects ............................................................................. 56
Auctions carried out in the management of construction projects .......................................... 56
Adjudication and conclusion of the contract .......................................................................... 57
Calculating the value of offers .............................................................................................. 57
The production process in constructions ................................................................................... 60
Components of the construction production process .............................................................. 60

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Classification of production processes in constructions ......................................................... 60

Management of subcontractors ............................................................................................. 61
Methods of programming the construction activity ................................................................... 63
Study of deadlines for project activities ................................................................................ 63
Methods of operational planning of construction projects ..................................................... 63
Estimation of the construction costs .......................................................................................... 65
Key components of a cost estimating .................................................................................... 65
Major cost estimating techniques: best uses for each ............................................................. 66
The most likely causes of inaccurate project cost estimates ................................................... 72
The estimation process of constructions ................................................................................ 73
The main types of construction cost estimates ....................................................................... 76
A construction cost estimates perspective on building systems .............................................. 77
The elements of a construction cost estimate ......................................................................... 78
Profit .................................................................................................................................... 81
Contingencies ....................................................................................................................... 87
Influences on construction costs............................................................................................ 88
The major approaches to construction cost estimation ........................................................... 89
The construction cost estimator’s job .................................................................................... 90
Best practices in construction cost estimating and what not to do .......................................... 91
Common pitfalls for construction cost estimators .................................................................. 92
Cost estimating applications and software ............................................................................. 93
New aspects of construction cost estimating ......................................................................... 93

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Management – general considerations

Management is a term derived from English and adopted as such, with a very complex semantics,
which designates the science of organization management and their scientific management.

Etymology

The term management comes from the Latin maneo which means to stay where it came from the
French term maison (house) and household. Then from the Latin noun manus (hand) was formed
in Italian maneggio (manual processing). From French or Italian, these words have acquired, in
English, the form of the verb to manage, with various meanings, including those of administer, to
lead. The English then formed the nouns manager and management accordingly.

The shaping of management as a science, which began in the first years of the current century,
consisted in the successive sedimentation of the contributions of different currents of thought,
scientific personalities or practical life, around which schools and movements were established
that marked that process.

Although leadership existed, in a rudimentary form, practically from the beginning of the
organized life of the human community, the late appearance of the special interest for the field of
management and its first systematic studies is explained by the fact that only to a certain degree of
industrial development technologicalization of society is possible and necessary the
systematization of knowledge and the coagulation of specific theories.

The beginnings of the coagulation of management as a science are identified with the movement
for scientific leadership, which emerged in the US in the first decade of the twentieth century,
which fights for the existential idea of maximizing the results of individual or collective activity
with minimal effort.

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Definitions

Many management thinkers have defined management in their own ways. For example, Van Fleet
and Peterson define management, ‘as a set of activities directed at the efficient and effective
utilization of resources in the pursuit of one or more goals.’

Frederick W. Taylor defined management in his book Shop Management, published in 1903, as
"knowing exactly what people want to do and supervising them to do it in the best and cheapest
way";

Henri Fayol, in his book Administration Industrielle et Generale, published in 1916, mentioned
that "to administer means to foresee, organize, command, coordinate and control";

Megginson, Mosley and Pietri define management as ‘working with human, financial and physical
resources to achieve organizational objectives by performing the planning, organizing, leading and
controlling functions‘.

‘Management is a problem solving process of effectively achieving organizational objectives

through the efficient use of scarce resources in a changing environment.’

According to Harold Koontz, ‘Management is an art of getting things done through and with the
people in formally organized groups. It is an art of creating an environment in which people can
perform and individuals and can co-operate towards attainment of group goals.‘

A leader has certain inherent qualities and traits which assist him in playing a directing role and
wielding commanding influence which others. Leadership is an integral part of management and
plays a vital role in managerial operations, while management is an integral component of
technical as well as social processes. The practice of management is as old as human civilization.
However, the study of management in a systematic and scientific way as a distinct body of
knowledge is only of recent origin.

Management in some form or another is an integral part of living and is essential wherever human
efforts are to be undertaken to achieve desired objectives. The basic ingredients of management
are always at play, whether we manage our lives or our business.

For example, let us look at the managerial role of a simple housewife and how she uses the
managerial ingredients in managing the home. First, she appraises her household and its needs.
She forecasts the needs of the household for a period of a week or a month or longer. She takes
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stock of her resources and any constraints on these resources. She plans and organizes her
resources to obtain the maximum benefits out of these resources. She monitors and controls the
household budget and expenses and other activities. In a large household, she divides the work
among other members and coordinates their activities. She encourages and motivates them to do
their best in completing their activities. She is always in search for improve, mention goals,
resources and in means to attain these goals. These ingredients, generally, are the basic functions
of management.

Importance of Decision Making in Management

In business circles, it is often said that if a company is not moving forward, it is moving backward
because there is no such thing as standing still in business. This strong statement is a good reminder
of the importance of decision-making in management. Without clear decisions based on where the
company has been, where it is and where it is headed, the business tries to maintain the status quo
but ultimately falls behind. Management with strong decision-making skills has the power to help
build an organization that stands the test of time and stands out against the competition.

Meaning of decision-making

Decision-making is a process of selecting the best among the different alternatives. It is the act of
making a choice. There are so many alternatives found in the organization and departments.
Decision-making is defined as the selection of choice of one best alternative. Before making
decisions all alternatives should be evaluated from which advantages and disadvantages are
known. It helps to make the best decisions. It is also one of the important functions of management.
Without other management functions such as planning, Organizing, directing, controlling, staffing
can’t be conducted because in this managerial function decision is very important. According to
Stephen P. Robbins, “decision-making is defines as the selection of a preferred course of action
from two or more alternatives.”

Importance of decision-making

1. Implementation of managerial function: Without decision-making different managerial

function such as planning, organizing, directing, controlling, staffing can’t be conducted. In other
words, when an employee does, s/he does the work through decision-making function. Therefore,
we can say that decision is important element to implement the managerial function.

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2. Pervasiveness of decision-making: the decision is made in all managerial activities and in all
functions of the organization. It must be taken by all staff. Without decision-making any kinds of
function is not possible. So it is pervasive.

3. Evaluation of managerial performance: Decisions can evaluate managerial performance.

When decision is correct it is understood that the manager is qualified, able and efficient. When
the decision is wrong, it is understood that the manager is disqualified. So decision-making
evaluate the managerial performance.

4. Helpful in planning and policies: Any policy or plan is established through decision making.
Without decision making, no plans and policies are performed. In the process of making plans,
appropriate decisions must be made from so many alternatives. Therefore, decision making is an
important process which is helpful in planning.

5. Selecting the best alternatives: Decision making is the process of selecting the best
alternatives. It is necessary in every organization because there are many alternatives. So decision
makers evaluate various advantages and disadvantages of every alternative and select the best
alternative.

6. Successful; operation of business: Every individual, departments and organization make the
decisions. In this competitive world; organization can exist when the correct and appropriate
decisions are made. Therefore, correct decisions help in successful operation of business.

Decision-making skills are the processes we use to make choices about the direction we want to
point our organizations in. Different from problem-solving skills, which are reactive in response
to something gone wrong, decision-making skills are proactive and help to prevent crises from
occurring in the first place. Decision-making skills are based upon the organization's mission,
vision, financial situation, culture, priorities, values, long-term and short-term goals. Good
decision-making skills recognize that what we don't do is just as important, if not more important,
than what we do.

Seven Steps in Decision-Making

While many organizations utilize different decision-making models, the following seven steps are
common and help us to think through what is actually best for our organizations and teams. The
steps are as follows:

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1. Clarify the Decision: Consider what outcome you want to see from your decision. Narrow
down the decision from something big and obscure to something specific and actionable.
For instance, instead of saying that you want to increase overall profits, narrow down the
decision to choosing which product lines to increase in order to generate more sales in the
fourth quarter.

2. Gather the Facts: As human beings, it is normal to have feelings about our favorite
products or employees, but as managers, we must act on the facts. Instead of choosing our
favorite products, look at which products are performing best, what the market trends are
and how that plays into the company's vision and mission. Instead of choosing our favorite
employee to spearhead an effort, look at everyone's proven track record and educational
background, as well as their leadership abilities. Choosing which facts not to consider is
just as important as choosing which ones to consider. Information overload can bog down
the decision-making process.

3. Look for Options: With pertinent facts at your fingertips, it is time to look for all the
possible options. This is where creative management brainstorms and considers all the
possible solutions to a problem or opportunity and gets them down on paper. For example,
you could have employee B partner with employee D to increase product 223's revenues
in the home market. Or, you could have employee A design product 224 so that it appeals
to customers who already have product 223. Write down all your options.

4. Weigh Pros and Cons: Narrow down your options to those that are most likely to produce
the results you are looking for and then conduct a risk-benefit analysis. Write down the
pros and cons of each scenario so that you have a good idea of what is really involved with
pursuing any given path.

5. Choose the Best Option: When you weigh the pros and cons, you are likely to have an
idea of which options produce the greatest possibility for benefit with the least amount of
risk. While this is the case, sometimes the company values or objectives mandate assuming
a certain level of risk, so choose among your options, according to your company's
objectives.

6. Move Forward: Once you determine the best option for getting where you are going, move
forward in an organized way. Ensure you know the who, what, when, where and why of
moving forward and then supervise the process, making adjustments as you go.

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7. Evaluate the Results: Managers are humans and not robots, so we learn to make better
and better decisions through experience. Evaluate your results to see if you got where you
were going. What went well and what could you do differently next time to increase your
success?

Importance of Decision-Making Skills

The importance of decision-making skills cannot be understated. Without them, companies would
never create new products, hire new employees, downsize, restructure, adhere to certain ethics or
impact their industries with meaningful change. Good business is dependent on good and ethical
decision-making skills.

Using a formal process or set of steps for decision-making alters the course of the future. As a
manager, you have the power to increase the bottom line or even to accidentally reduce it. Your
decision-making skills will influence job availability, which has a real impact on the personal lives
of those on your team. When you possess strong decision-making skills, not only will the company
get where it is going, but those who look to you for leadership will get where they are going, too.

Importance of Decision-Making in Life

The importance of decision-making in life is that our personal decisions shape our personal lives,
and perhaps those of generations to come. One way to increase decision-making skills in the
workplace is to practice decision-making skills in everyday life. Perhaps you want to retire early,
spend more time working out, make it to the kids' basketball games, take the family on a vacation
without pinching pennies, make more ethical purchases or give more to your favorite nonprofit
organizations.

Try practicing the seven steps of decision-making in your personal life to make these smaller goals
happen. The more you do it, the stronger your skills are likely to get. This gives you the opportunity
to strengthen your decision-making skills without playing with large sums of money, and while
simultaneously benefiting your family or personal life.

Importance of Decision-Making in Business

The importance of decision-making in business is that our decisions impact our own income, the
business' bottom line, company culture, our customers' lives and the livelihood of our employees.
While choosing between product A and product B might seem like a simple office decision and a
reason for your regular Wednesday meeting to run late, it is actually so much more. This is why
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practicing our decision-making skills in our private lives is so vital. Once we get into the business
setting, our decision-making skills impact not only our own families but the business as a whole,
suppliers and multiple other families, as well.

Importance of Decision-Making in Leadership

Those in official management positions are not the only people in an organization that hold
leadership pull. If you pay close attention to your employees, you will likely notice that others are
in unofficial positions of leadership due to their:

 Knowledge and expertise.

 Ability to listen.

 Inspiring nature.

 Connections.

 Integrity.

 Ability to motivate.

The importance of decision-making in leadership roles that are unofficial is almost as vital as it is
in official management. While these unofficial leaders probably will not have the final say on your
next new hire, they will influence the way the rest of the team operates. Mentoring unofficial
leadership in decision-making skills can make your job as a manager easier, as well as prepare
them for possible official leadership roles later in their career.

Importance of Decision-Making in Management

Depending on the level of your management position, you likely make many important choices
each day. These decisions could include things like:

 New hires.

 Downsizing.

 Product selection.

 Budgeting.

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 Buying.

 Creating new products.

 Team composition.

 Morale strategies.

 Marketing strategies.

 Scheduling.

 Training.

 Mentoring.

 Networking.

 Continuing education.

Each of these decisions impacts many people, from the managers above you, to the families of
employees below you, to your customers and their families. The importance of decision-making
in management lies in your power as a manager to impact people either positively or negatively
with each decision you make. The more you practice decision-making skills that aim to reduce
risk and increase benefit, the greater of a positive impact you will have on those around you and
the world.

Learning Decision-Making Skills

Learning decision-making skills is a process rather than a "one-and-done" exercise. Allow yourself
the time to practice decision-making skills both at home and on the job over time. As you evaluate
your results each time, you are likely to see gradual improvement. If not, courses at your local
business school or community college could help catch your blind spots and teach you how to get
the results you are looking for.

When it comes to personal hang-ups that get in the way of our professional decision-making
abilities, it might help to see a therapist or mental health practitioner who can help you problem
solve and become the leader you want to be.

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Teaching Decision-Making Skills

Managers are often tasked with not only practicing decision-making skills, but also with teaching
them to their teams or up-and-coming leaders. Regular meetings to practice making decisions
together or to review the results of past decisions help the employees on your team to develop the
kinds of decision-making skills they need for success on the job. Podcasts, videos and outside
trainers are other options to pursue in order to account for a variety of learning styles and
preferences.

Conflicts of Interest

Sometimes our jobs require us to make decisions that we cannot make in an unbiased way. For
instance, a manager whose kid works alongside another employee might be tasked with deciding
who stays and who goes during a company restructuring. Or, a husband and wife might both be
managers and are asked to work together in a way that puts other managers at a disadvantage.

When conflicts of interest cloud your decision-making abilities as a manager, it is important to

speak up. Many companies have policies and procedures in place to address situations where a
particular leader encounters a conflict of interest in decision-making.

Finding Outside Help

Sometimes the best decision a manager can make is that they are not qualified to make a decision.
Organizational development consultants, advertising consultants, corporate psychology
consultants and others have developed entire professions out of helping to make the decisions you
are not qualified to personally address.

When you are not qualified to make the needed decisions in order to further your organization's
mission and vision, consider hiring one of these professionals who are trained to cover your blind
spots. They can provide specialized insight and knowledge that would not be otherwise available
so that you and your team can get where you are going as efficiently as possible.

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Characteristics of a good manager

“The productivity of work is not the responsibility of the worker but of the manager” –
Peter Drucker

In the modern workplace, leaders and managers set the tone for the organization as a whole and
provide the foundations for performance and results. The qualities of what makes a good manager
vary greatly depending on the organization, its strategy, the manager’s specific objectives, and
even the team they will be managing.

Management skills can be defined as certain attributes or abilities that an executive should possess
in order to fulfill specific tasks in an organization. They include the capacity to perform executive
duties in an organization while avoiding crisis situations and promptly solving problems when
they occur. Management skills can be developed through learning and practical experience as a
manager. The skills help the manager to relate with their fellow co-workers and know how to deal
well with their subordinates, which allows for the easy flow of activities in the organization.

Types of Management Skills

According to American social and organizational psychologist Robert Katz, the three basic types
of management skills include:

1. Technical Skills

Technical skills involve skills that give the managers the ability and the knowledge to use a variety
of techniques to achieve their objectives. These skills not only involve operating machines and
software, production tools, and pieces of equipment but also the skills needed to boost sales, design
different types of products and services, and market the services and the products.

2. Conceptual Skills

These involve the skills managers present in terms of the knowledge and ability for abstract
thinking and formulating ideas. The manager is able to see an entire concept, analyze and diagnose

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a problem, and find creative solutions. This helps the manager to effectively predict hurdles their
department or the business as a whole may face.

3. Human or Interpersonal Skills

The human or the interpersonal skills are the skills that present the managers’ ability to interact,
work or relate effectively with people. These skills enable the managers to make use of human
potential in the company and motivate the employees for better results.

Definitive characteristics of work managers

Regardless of the basic profession, the job level, the company profile (respectively the nature of
the activity), the persons with management positions present the same essential features. These
defining characteristics of managers are expressed in connection with the work tasks of managers
and can be summarized in the following:

a) Double professionalism

The manager is located in a system of attributions with a large and diversified problem. As such,
the manager cannot be an individual unilateral. His double specialization involves, in addition to
the knowledge required by professional competence and thorough knowledge in fields adjacent to
management science: work psychology, sociology, logic, ergonomics, labor jurisdiction, hygiene
and labor protection.

The unilateral specialized leader is an outdated profile. The modern, double-professional leader
belongs to the news: specialist and manager.

b) Getting the results with the help of others

Each leader obtains the results pursued in a mediated way, through his collaborators, through the
members of the team that is subordinated to him. Using means of influencing, determining the
collaborators and subordinates, the leaders contribute in a specific, mediated way, to the
achievement of the pursued objectives; this is the fundamental peculiarity of the manager's work,
which places it in the sphere of psycho-social relations. This necessitates the ability to develop an
effective system of boss-subordinate and subordinate relations that supports a work climate open
to performance. It is also necessary a finalist behavior of the manager, which will influence the
behavior of subordinates and orient him towards obtaining results corresponding to the established
objectives.

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c) The accentuated creative character of the activity carried out

Approximately 80% of the manager's work is faced with new, unique situations and problems that
he has to face through solutions, often risky. Therefore, the management work is located in the
category of senior activities, appreciating that managers must be able through creativity and
innovation to successfully cope with all the problems generated by technical, technological,
economic, social changes facing the organization. The results of the management work are
materialized in an original “production”, an expression of the use of some attributes indispensable
to creativity: curiosity and inventiveness; imagination; receptivity to the new; initiative; creative
force.

d) Legal and moral authority and responsibility

In the exercise of his duties, the manager acts primarily through the authority with which he is
officially invested, at the appointment; this is the official authority (formal or "de jure"). It provides
the leader with legitimacy, decision-making power, superiority (leadership) and gives official
support to the firmness of the decisions taken.

For the manager's power to influence employees to be full, the official authority must be
complemented by personal authority ("de facto") which is supported by a set of subjective
supports: professional prestige; the experience; the ability to work with and train people; the ability
to organize the activity of subordinates; the ability to make effective decisions and put them into
practice; the way he knows how to impose himself in front of his subordinates.

Personal authority is the authentic, solid and lasting side of the manager's authority, which
materializes in superiority, certain ascendancy over subordinates, in their full respect and trust.

The two sides of authority can be found in relation to coexistence or in relation to disjunction. In
the first situation, the “de facto” authority of the manager supports and strengthens the formal
authority. In the second situation, we can witness tensions and dysfunctions of an organizational
and decision-making nature.

The manager's responsibility defines the duties for which each manager is responsible. It gives the
manager a certain status in the hierarchy of the organization and in front of subordinates.

e) Overload

In the management work, the manager's overload is determined both by the content of his activity
(various and difficult problems to be solved; the decisional "stress" to which the manager is
constantly subjected; excessive fragmentation of work caused by extremely diverse demands,
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untimely, external requests, not directly related to the duties and level or decision, etc.) as well as
the extension of daily working time beyond officially regulated working time. Specialists have
identified several causes that lead to overwork of managers:

• Irrational use of working time which may be determined by:

- solving and addressing issues that are within the competence of subordinates;
- numerous and long meetings, proving a poor organization;
- training in too many activities, often without direct connection with their own work
responsibilities;
- resolving correspondence, telephone conversations, conversations with people within the
organization and especially with those outside it;
- lack of a systematic daily work schedule or non-compliance by the manager.

• Defective work style manifested by:

- addressing insufficiently prepared issues;

- unjustified prolongation of decision-making through endless discussions;
- not giving enough independence to subordinates and the tendency to solve everything on
their own, (ignoring the method of delegation) which leads to the dispersion of efforts
through contact with too many people and problems.
• Poor professional training and / or indiscipline (both of collaborators and subordinates), which
determines frequent interventions of the manager to solve the tasks of subordinates or
collaborators.

• The existence of non-performing information systems that make information difficult and
difficult to make decisions.

Overload has a number of consequences for managers, the most common being:

- Permanent time crisis (a survey conducted among top managers from various organizations
established that only 16% of the interviewed leaders appreciated that their daily working
time is enough to solve their tasks).
- Physical and nervous exhaustion, causing a decrease in the personal performance of
managers and the appearance of visible changes in their behavior (impatience, impulsivity,
nervousness, irascibility) that contribute to the deterioration of the work climate.

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- Affecting the health of managers. Statistics show that anyone in more than 5 years in an
important leadership position is affected by diseases of the nervous system, cardiovascular
or digestive tract (these diseases are often called "drivers' diseases").

Avoiding overwork and its consequences depends essentially on how the manager organizes and
carries out the activity, which, following an acceptable combination between the efficiency of his
work and the degree of stress to which he is subjected, must constantly pursue:

- focusing on key issues and delegating routine or secondary issues to subordinates;

- the use of daily work programs that (even if they are not fully complied with) provide a
basis for the rational development of the manager's working time;
- proper preparation, conduct and completion of meetings;
- effective use of the secretariat;
- appropriate use of modern management methods and techniques;
- hiring and retaining valuable employees within the organization and the rational use of
their professional capacity.

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Management Styles

What is a management style?

A management style is a way in which a manager works to fulfill their goals. Management style
includes the way that a manager plans, organizes, makes decisions, delegates, and manages their
staff.

It can vary widely depending on the company, level of management, industry, country, and culture,
as well as the person themselves. An effective manager is someone who can adjust their
management style in response to different factors while keeping their focus on successfully
achieving targets.

Management styles are affected by both internal and external factors.

Internal factors include the overall organizational and corporate culture of the company, as well
as policies, priorities, employee engagement and staff skill levels. In general, the higher-skilled
staff does not need as much supervision, while less skilled staff will require more monitoring to
consistently achieve their objectives.

External factors include employment laws, the economy, competitors, suppliers and consumers.
These are factors that are outside of the control of the organization, but will have an effect on both
managers and employees.

Types of management styles

There are three broad categories of management styles: Autocratic, democratic and laissez-faire.
Within these categories, there are specific subtypes of management styles, each with its own pros
and cons.

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1. Autocratic management styles

This type of management follows a top-down approach, with one-way communication from bosses
to employees.

This is the most controlling of the different management styles, with the management making all
workplace decisions and holding all of the power.

Employees are treated as drones, to be monitored closely as they perform within clearly defined
perimeters.

Employees are not encouraged to ask questions, submit ideas, or share their thoughts on improving
processes, and are in some cases actively discouraged from doing so.

The subtypes of autocratic management style are authoritative, persuasive, and paternalistic.

Authoritative management style

In this style, managers dictate exactly what they require their subordinates to do and punish those
who do not comply.

Employees are expected to follow orders, not question the authority of management, and perform
their tasks the same way each time.

Managers monitor the employees closely, micromanaging their performance without placing trust
or confidence that their employees can achieve their goals without direct and constant supervision.
These types of managers believe that without this supervision, employees will not operate
successfully.

 Pros: This management style allows quick decision making, and creates clearly defined
roles and expectations. With unskilled workers or large teams, setting clear and solid
expectations can allow workers to operate without uncertainty. Productivity will increase,
but only when the manager is present.

o Cons: The negatives of authoritative management style includes an increase in the

dissatisfaction of employees, which leads to higher turnover, resentment, a lack of
professional development and employee engagement, and the formation of an ‘us’ versus

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‘them’ mentality between employees and management. Innovation is stifled and inefficient
processes will remain in place.

When to use this style: If decisions need to be made and executed quickly, for example, in a time
of organizational crisis, this management style can be used successfully. It should otherwise be
avoided.

Persuasive management style

In this style, managers use their persuasive skills to convince employees that the unilateral
decisions that the manager implements are for the good of the team, department, or organization.

Rather than simply ordering employees to perform tasks, managers employing this style would
invite questions and would explain the decision-making process and rationale behind policies. This
can help employees feel as though they are a more trusted and valued part of the staff and are
involved in key business decisions, leading to lower levels of resentment or tension between
management and staff.

 Pros: Management can establish a higher level of trust between themselves and employees,
and employees will accept top-down decisions more easily. Employees respond more
positively to reason and logic than they do the threat of punishment, and may feel less
constricted than those managed with an authoritative style.

o Cons: Employees will still chafe under the restrictions they are placed under, and become
frustrated that they cannot give feedback, create solutions, or upskill in a meaningful way.

When to use this style: This style can be used when you have more experience on the subject than
the team you are leading. In those cases, you are the expert. While it is helpful to explain your
thought process, ultimately, you know best. It can also be helpful when managing upwards.

Paternalistic management style

In this style, the manager acts with the best interests of their subordinates at heart.

Usually, the organization will refer to staff as ‘family’ and ask for loyalty and trust from
employees.

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Management using this style will use unilateral decision making but will explain to employees that
the decision-makers are working from a place of expertise, and thus, legitimacy. Decisions are
explained to employees, but there is no room for collaboration or questioning.

 Pros: A paternalistic manager is focused on the welfare of their employees, and will base
their decisions on what is best for their staff. Upskilling and employee education are
valued, leading to happier, more skilled, more productive employees.

o Cons: Employees can become too dependent on management, leading to a lack of

innovation and problem-solving. There is a high chance of this style breeding resentment
among employees who do not believe in the ‘organization as family’ concept. Employees
might find this style condescending and infantilizing.

When to use this style: The use of this style is heavily culture-dependent. In Western countries,
there is less reliance on hierarchical structures, and employees will be less accepting of the idea of
a benevolent leader. Smaller companies may find success in this type of leadership, but it should
be avoided by larger organizations.

2. Democratic management styles

In this style, managers encourage employees to give input during the decision-making process, but
are ultimately responsible for the final decision.

Communication goes both ways, top-down and bottom-up, and team cohesiveness is increased.

This process allows for diverse opinions, skills and ideas to inform decisions.

Consultative management style

In this style, managers ask for the opinions and thoughts of their team, consulting the viewpoints
of every member of their team.

The manager will make the final decision, but they will consider all of the information given by
team members before they do so.

This style is often used in specialized fields, where staff are experts and their input is needed for
the management to make informed decisions.

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 Pros: This style promotes a deeper bond between staff and management, and builds trust
within teams. Management grows with the team, as they learn from the ideas, opinions and
experience of the employees that they lead. Innovation and voicing opinions are
encouraged, leading to better problem-solving.

o Cons: The process of consulting staff can be labor and time-intensive. If a manager is not
skilled in the time management aspect of this process, they can easily get bogged down. If
there is an appearance of favoritism or bosses not listening to opinions, employees may
become resentful and distrustful of the manager. Excessive reliance on this style can lead
to staff losing trust in their boss, as they will start to wonder why they are always called on
to help solve problems instead of management handling it as part of their job.

When to use this style: This style should be used when managing teams with specialized skills or
when the manager does not have as much experience with the subject as the team does. For
example, a manager assigned to run a team of developers who are creating a new SaaS would want
to consult with their team often, to gain the benefit of their experience.

Participative management style

In this style, managers and staff are all active members of the decision process.

Staff are given access to more information about the company and its goals, and are encouraged
to innovate solutions.

Management seeks the thoughts, ideas and opinions of staff, works together with staff to make
decisions and then the company acts on them.

 Pros: Employees feel as though they are valued by their management team and the
organization as a whole, and will respond with increased motivation and productivity. The
more they understand and connect with the organization’s goals, the higher their
engagement will be. Innovation is increased.

o Cons: This process can be a slow one, and there is a risk of staff with bigger personalities
steamrolling less assertive staff members, leading to conflicts and resentment. In industries
with trade secrets, letting staff have access to sensitive information can be risky. If

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employees do not want to be involved in this type of decision making, they can grow to
resent managers who employ this style.

When to use this style: When implementing large changes in an organization, especially one where
employees are resistant to new concepts or strategies, encouraging participation from staff will
result in a more positive outcome and less resistance to new policies. Organizations that want to
drive innovation, such as tech companies, will find this style useful.

Collaborative management style

In this style, management creates an open forum for ideas to be discussed extensively before
making decisions based on majority rule. Staff is empowered to take ownership of outcomes,
which can lead to increased engagement, innovation and creativity.

 Pros: Staff feels trusted, valued and heard by all levels of their management team. They
are inspired to put forth their best work, find collaborative solutions to problems, and
engage completely with the process. Open communication means that workplace conflicts
are often solved before real issues arise. Turnover is decreased when employees are
engaged, and diverse voices often lead to better solutions and outcomes.

o Cons: As with other democratic management styles, this process can be time-consuming.
Majority rule can also not always be the best choice for an organization, and if there is a
decision that is not in the best interests of the business, management will need to step in
and change it, which can breed resentment and mistrust.

When to use this style: When a business wants to foster innovation, drive collaboration, and engage
employees, this style should be used. Any organization that wants to increase engagement and
trust, especially in the face of large changes within the organization or industry, should consider
this style.

Transformational management style

This style of management is agile and growth-focused.

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Managers focus their efforts on pushing their staff to ever greater accomplishments through
encouragement, pushing them past their comfort zones regularly, and consistently motivating their
teams to raise their bar for achievements.

Managers work alongside with their employees, inspiring their team to ever greater efforts by
demonstrating their own work ethic.

 Pros: Innovation is increased, and employees will more easily adapt to change, disruptions,
or challenging projects. Creative thinking is encouraged, and problem-solving and product
development will benefit from the increased flexibility of the staff.

o Cons: If not used carefully, this style will cause staff to burn out. Staff may end up spread
too thin, worn out from constantly pushing themselves, and unable to keep up with the
pace.

When to use this style: This style is best used in companies that are in fast-paced industries, or are
anticipating a period of changes within the industry, organization, or department. This style will
help teams become more agile, flexible, and innovative while responding to the outside or inside
forces.

Coaching management style

In this style, managers see themselves as the coach and their employees as the valued members of
their team.

The manager’s job is to develop and guide their team, putting their team’s professional
development at the forefront of their priorities. Long-term development is valued above short-term
failures in this style, and the manager wants to promote learning, upskilling and growing in the
workplace.

 Pros: Employees feel valued, they know that they will learn and develop within their roles,
and are more likely to be engaged. Managers build a strong bond with their employees,
who will in turn be more likely to put forth their best work for their ‘coach’.

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o Cons: This style can lead to toxic environments, as staff jockey for favored roles and
development tasks. Too much focus on long-term development can leave short-term
projects without proper support.

When to use this style: This style is useful when organizations want to promote and develop talent
from within. Industries with competitive job markets would benefit from this style, as it can cost
time and money to recruit the right candidates.

3. Laissez-faire management styles

In this style, management takes a hands-off approach to leadership.

Staff is trusted to do their work without supervision, and they are left to control their decision
making and problem-solving.

Management is present at the delegation and delivery stages of work, but otherwise steps back and
gives staff the freedom to control their workflow and outcomes. Management is only involved
during the process if the staff requests their assistance.

Delegate management style

In this style, the manager is only present to assign tasks, although they still are responsible for
tasks being completed successfully. Once the task is assigned, then the employees are empowered
to do their work as they see fit.

After the task is complete, the manager steps back in to review the work and give advice about
how to improve future projects.

 Pros: Innovation and creativity are fostered by this system, especially in organizations with
highly skilled workers. Problem solving and teamwork are strengthened, as staff are given
space to handle their own issues and will work together to solve them. Job satisfaction may
be increased in those who crave autonomy in their workplace.

o Cons: Without leadership, productivity may suffer. Teams can experience a lack of
direction, focus, or uniformity. Poorly managed conflicts may flare up and breed

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resentment. Some staff may feel that the management is not contributing anything towards
the team’s success and become resentful.

When to use this style: This style is best used in organizations with more decentralized leadership
and where the team is much more skilled than the manager in the tasks. If the manager has no real
experience in producing new cloud management software, for example, they can step back, allow
their team the freedom to innovate, and offer support if needed.

Visionary management style

In this style, managers lead through inspiring their staff.

Leaders explain their goals and the reasons behind them, convincing their team to work towards
executing their vision.

Team members are motivated by their manager, then allowed the freedom to achieve their tasks
with minimal interference. Managers will check in from time to time, but they trust that their
shared vision will keep employees on track and produce good results.

Managers offer a lot of constructive feedback during and after the process to assist their employees,
and make sure to give praise liberally.

 Pros: Engagement is heightened because staff believes in what they are creating and are
driven to complete tasks to the best of their ability. Employees are more satisfied,
motivation is higher and turnover will be lowered. Innovation is higher, and problem-
solving can happen quickly within teams.

o Cons: Not all managers can be legitimately inspiring. It depends on the job, the industry,
the product, and the person. This is not a style that can be faked, employees must actually
be inspired, or they will not perform as well.

When to use this style: This can be a great style in tech companies who are looking to disrupt
industries, nonprofits trying to innovate creative solutions to problems, or companies who have a
very strong sense of purpose. An organization that wants to drive innovation can turn to this style
to galvanize their staff into action.

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Organizations – general considerations

The concept of organization

The analysis of social groups, of social structures showed that society also exists through the
different way in which the relations between people, the relations between institutions and the
connections between people and institutions are organized. At the base of social action is the
rationality of human acts, as an effect of the goals pursued. Unlike animal communities in which
relationships between individuals are only natural, determined by the needs of food, defense and
reproduction, in human communities relationships between individuals or groups of individuals
are cooperative relationships animated by interests and complex needs established rationally.

Everywhere in social life we find systems of activity, concretely organized ensembles, within
which the agents of action (ie individuals or groups of individuals) collaborate, perform a socially
vital activity to achieve certain goals.

These deliberately constituted ensembles, generically called organizations, differ from social
groups by their formalized (official) and strongly hierarchical characteristics that ensure the
cooperation and coordination of the individuals in their composition.

The emergence of organizations in human society means that we are dealing with a stable model
of interpersonal cooperation, deliberately built on a system of norms and rules that oblige
individuals to carry out certain behaviors.

Organizations carry out their activity on the basis of these norms, principles, statutes, through them
regulate the relations between their members and only in this way can they achieve social order
and stability. An essential feature of modern society is the proliferation of various types of
organizations and increasing their role in human life. Man is born, lives, is formed and works in
concrete organizations.

Contemporary society is an organizational society, and today's man can be defined as an

”organizational man”.

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Defining the concept of organization is difficult, as a large number of economists, sociologists,

philosophers have analyzed and explained the concept from different perspectives.

Talcott Parsons defined the organization as a social unit created intentionally to pursue certain
concrete goals.

Georges Lapassade wrote that the organization is an ensemble of cooperating parties.

Tadeusz Katarbinski considered that the organization meant putting the parts of an ensemble in
such relationships that they could cooperate effectively for the success of the whole.

A more comprehensive definition of organization is: the organization is an open, coherent,

dynamic system, consisting of a relatively large number of members with relatively distinct
statutes and roles, established intentionally to effectively achieve a defined goal, by harmonizing
human and material resources, in the conditions of the existence of a set of values and norms and
of some management modalities. The given definition illustrates that the organization represents
a special type of system and has characteristics that derive from the specifics of organized social
systems.

The organization, as a social system, is an open, adaptive system, a component of larger systems
with which it has harmonized connections through different processes, having at the same time its
own degree of autonomy, an independent functioning. The organization can be understood only as
an open system, whose internal processes are in inter-relationship with the environment. The
organization, as a completely closed system, will probably never exist, because its components are
always influenced by forces outside the system.

Classification of organizations

It is a difficult problem because in the literature there is no unanimity on the criteria for classifying
organizations. J. Hall, R. Hass, and N. Johnson in a study entitled "Toward an Empirically Driven
Taxonomy of Organizations" published in "Study of Behavior in Organizations" presented a list
of 32 criteria that may underlie the classification of organizations. Another sociologist E.C.
Hughes identified five types of organizations characteristic of contemporary society, using as a
reference criterion the general purpose of each:

 voluntary associations - which included various associations, clubs, the Catholic Church,
etc.

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 military organizations - national army, military academies

 philanthropic organizations - universities, hospitals, research institutes
 corporate type organizations: IBM, Ford, General Motors
 family business organizations: Mafia, small family businesses.

Peter M. Blau and A. Scott classified organizations according to the principle: "who benefits from
the specific organizational activity" and proposed the following four types of organization:

 organization with mutual benefit - whose first beneficiaries are the members and the
registered ones and who hold a rank. Ex: political parties, trade unions, veterans'
organizations;
 business organizations - have as first beneficiary the owners and managers. They include
industrial companies, banks, insurance companies, shops;
 organizations that organize services - have as first beneficiary customers. Include in this
case employment agencies, tourism, hospitals, schools, aid companies;
 the public organizations that benefit the general public and here are included: military
services, police, fire, magistrates, etc.

W. M. Evan proposed as a criterion for classifying organizations according to the number of levels
existing within them. Organizations are classified into:

o "short organizations" - with a small number of intermediate levels between the basic link
and leadership.
o "high organizations” with a large number of intermediate levels.
o ”Repercussions” - a large number of levels increases the number of subordinates and
bosses and has implications for communication in the organization.

Amitai Etzioni made a classification of organizations based on conformist behavior. Conformism

is a major element of the relationship between those in power and those on whom it is exercised.
Those in power can exercise authority over subordinates through coercion, reward, and normative
means resulting in three types of power: coercive power, remunerative power, normative power.

By type of power, organizations are divided into:

 coercive organizations - concentration camps, prisons, hospices, prison camps.

 utilitarian organizations - industrial enterprises, research institutes, business unions.
 Normative organizations - religious, political organizations, school, professional
associations.

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Another classification is based on the genotypic function, i.e. the function that the organization
fulfills as a subsystem of society as a global social system.

 productive or economic organizations such as: factories, transport companies,

communication companies.
 maintenance organizations - schools, churches.
 adaptation organizations - research institutions, laboratories, universities.
 managerial-political organizations - take into account the structure of state, governmental
and local administration, political parties, trade unions, pressure groups.

Classifications of organizations can be made in relation to a lot of other criteria such as:

According to the mode of leadership:

o democratic
o authoritarian

According to the requirements imposed on the selection of members:

o organizations with a high degree of selectivity

o organizations with a low degree of selectivity

After imposing restrictions:

o the members of the organization can participate in the actions of other organizations
o the members of the organization cannot participate in the actions of other organizations

Organizational structure

By organizational structure is meant the basic framework of positions and groups of positions
between which are established models of interaction and relationships that allow the achievement
of the mission and objectives of the organization.

Practical experience shows that certain strategies or contexts suit a certain type of structure. A
change in strategy requires a change in the way the organization is structured, because the old
structure prevents, at some point, normal development and economic performance. It was opined
that there is the following sequence of events likely to occur:

1. creating a new strategy;

2. the appearance of new administrative problems;

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3. the decline of economic performances;

4. creating a new appropriate structure;
5. restoring the profit to the previous level.

The most important structural problems are related to the form and mode of compartmentalization
of the organization and the balance between centralization and decentralization of authority. If an
appropriate structural 'formula' is quickly adopted, this can give the organization a competitive
advantage.

Structural typology

When referring to the structure of the organization, everyone thinks about the organization chart
of the organization. The organization chart is the graphical representation of the organizational
structure according to a set of rules. According to the rules of representation, it gives an image on
the way of compartmentalization of the organization and the relations between the compartments.
Although it is only a synthetic tool for formalizing the structure, the information it provides
suggests the type of strategy the organization is considering.

Simple structure

The simple structure is characteristic of small entrepreneurial organizations. In fact, the label
'simple structure' may mean that there is no structural formalization. The owner is the manager of
the business and the other members of the organization are directly subordinated to him.
Interpersonal contacts are direct, and the functioning of the organization requires a weak
differentiation between positions. All important decisions belong to the owner.

This hierarchical structure is called "simple structure" by some authors, because any member of
the organization is subordinated to a single person who has full managerial authority.

Functional structure

In organizations with a functional structure, the compartmentalization is based on the homogeneity

of activities (tasks) that are performed within a category of positions using related technologies or
qualifications. Activities could be grouped into functions such as production, marketing, staffing,
etc. , which are then subdivided on the same principle. For example, the marketing department can
be subdivided for sales, advertising and marketing research.

The structure is characteristic of small and medium organizations, but is also preferred by large
organizations that operate in a stable environment or that are focused on a small number of

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products or strategic segments in which the competitive advantage is based on functional

specialization.

Fig. The functional structure of an organization

Advantage Disadvantages
- direct contact with all compartments - routine tasks overload bosses

- simple control mechanism - the strategic aspects are neglected

- clear responsibilities - difficult coordination between functions

- specialization of department heads - - Diversification is difficult to approach

routine tasks overload bosses

Divisional structure

The divisional structure appears in the case of large organizations, in response to the diversity of
problems that arise and which the functional structure can no longer cope with. The characteristic
compartment of this structure is the division, which has the advantage of concentrating on a
problem with full responsibility and authority. Divisional compartmentalization is based on
product, geographic area, consumer or, less frequently, process.

Innovation in the field is the strategic business unit, which groups several similar divisions.

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Fig. The divisional structure of an organization

Advantage Disadvantages
- focus on business - conflicts between divisions

- easy performance measurement - premises for the division overextension

- easiness of adding or selling divisions - high administrative costs

- focusing on a division strategy - complexity of coordination

-allows the management of the - possibility of interdivision trade

organization to focus on general issues
- possible confusions as a result of the
centralization-decentralization balance

Holding structure

The holding organization represents the investment company, which holds interests in a diversity
of businesses without operational connection between them and over which only a financial
control is exercised.

The ties or financial interests in an organization called 'subsidiary' or 'subsidiary' are given by the
percentage of capital held: 100% ownership, majority ownership, joint ownership, minority
ownership or participation.

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Advantage Disadvantages
- risk sharing - sales risk for subsidiaries

- cheap financing facilities - lack of synergy between businesses

- decentralization facilities - difficulty of control

- facilities for sale - impossibility to use the functional

capacities of the group at the level of a
- facilities of association with other
subsidiary
holding companies

-autonomy of management and

management

The parent company exercises its control through its representatives in the boards of directors of
the subsidiaries, based on the percentage of share capital held.

The analysis of a holding organization is laborious and requires a mandatory study of the whole.
A separate study of a broken subsidiary in the context of the holding company is meaningless.
From a financial-accounting point of view, an image can be achieved only by studying the
consolidated balance sheet.

The appearance of this structure was the result of a necessity: the reunification of complementary
activities of different stages of a production process. The parent company gradually increases its
financial participations and decreases its productive activities, transforming from a mixed holding
company (production and finance), into a pure holding company, dedicated to the management of
its subsidiaries.

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The complex connections that appear in such structures (vertical and oblique connections in a top-
down direction, but also vice versa) often serve evasive fiscal purposes. From a certain level of the
structure down, legal and fiscal pursuit is difficult, and operating constraints decrease.

Matrix structure

The matrix structure is a combination of structures in which a double subordination appears, hence
the name 'matrix'.

The principle of the control unit is violated, but other advantages are obtained from the more
clearly focused operation.

Advantage Disadvantages
- the quality of the decision in the conflict - long time for decision making
of interests
- clear responsibilities
- direct contact that delimits the
- difficult tracking of responsibilities for
bureaucracy
costs and profit
- improving motivation
- source of conflicts and ambiguities
- increased involvement of managers in
- dilution of priorities
the decision-making process

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Intermediate structures

Each organization will choose the structure it considers appropriate for its purposes. Usually an
organization chart is a mixture of the structural types discussed, the cases of 'pure' structures being
rare.

A large organization operating in tourism may have a functional structure, but divisional structures
based on the geographical dispersion of autonomous units are also possible - hotels with
restaurants, travel agencies, etc.

The vast majority of current organizations have an organizational structure generically called in
Romanian the 'hierarchical-functional structure', which would correspond in terms of the content
of the English concept labeled 'staff and line'. The concept means the existence in an organization
of two categories of staff and two categories of relationships:

 The personnel directly involved in the realization of the basic product (English 'personnel
line'), to which the hierarchical type relationship corresponds;
 The staff that indirectly contributes to the realization of the basic product, by carrying out
the design, the quality control, the staffing, etc., (English 'staff personnel') and to which
the functional relationship corresponds.

A relatively new structure and different from those presented is that of the network organization.
The distribution of information is done using modern technologies, so that the pyramid hierarchy
is replaced by a network of relationships based on communication. The network of relationships
is used as a coordination mechanism. The reference organization is a 'node' in a system made up
of strictly specialized organizations that operate independently. Most of the activities, which were
traditionally carried out within the organization, will be outsourced, ie they will be performed by
specialized organizations.

Organizations of this type are specific to a competitive environment in which there is a relative
oversupply, which would allow a given organization to make a selection.

Authority - centralization versus decentralization

Organizational authority is the power, conferred by the organization on its members, to make
decisions.

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Decentralization occurs when a number of important decisions are left to the structural elements
at lower levels - strategic business units, divisions or other departments, more correctly, to their
managers. Centralization is the opposite of decentralization. The measure of decentralization is
appreciated by comparison with organizations similar to the reference one.

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Management of the construction activity

The term ‘Construction’ does not only denotes physical activities involving men, materials and
machinery but also covers the entire gamut of activities from conception to realization of a
construction project. Thus, management of resources such as men, materials, machinery requires
effective planning and scheduling of each activity.

The integration of the construction project in the organizational structure of the company can be
done in different forms: functional organization, organization by projects, matrix organization.

Functional organization: involves the integration of the project in the functional organization of
the construction company. The project is subordinated to the functional compartment. Most often
the project is subordinated to the technical director.

The organization on projects consists in the organization of the activity on projects, which are
separated from the activity of the construction company, with its own management, technical and
administrative staff. This organization is related to the construction company only through periodic
reports that the project manager presents to the company's management.

Matrix organization; it is a combination of functional and project organization, combining their

advantages. It can take a variety of forms depending on the predominance of a particular type of
organization.

What is Construction Management?

Management is the science and art of planning, organizing, leading and controlling the work of
organization members and of using all available organization resources to reach stated
organizational goals.

Construction management deals with economical consumption of the resources available in the
least possible time for successful completion of construction project. ‘Men’, ‘materials’,
‘machinery’ and ‘money’ are termed as resources in construction Management.

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Objectives of Construction Management

The main objectives of construction management are,

o Completing the work within estimated budget and specified time.

o Maintaining a reputation for high quality workmanship

o Taking sound decisions and delegation of authority

o Developing an organization that works as a team.

Functions of Construction Management

The functions of construction Management are:

(a) Planning

It is the process of selecting a particular method and the order of work to be adopted for a project
from all the possible ways and sequences in which it could be done. It essentially covers the aspects
of ‘What to do’ and ‘How to do it’.

Importance of construction project planning:

o Planning helps to minimize the cost by optimum utilization of available resources.

o Planning reduces irrational approaches, duplication of works and inter departmental
conflicts.
o Planning encourages innovation and creativity among the construction managers.
o Planning imparts competitive strength to the enterprise.

(b) Scheduling

Scheduling is the fitting of the final work plan to a time scale. It shows the duration and order of
various construction activities. It deals with the aspect of ‘when to do it’.

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Importance of construction project scheduling:

Scheduling of the programming, planning and construction process is a vital tool in both the daily
management and reporting of the project progress.

(c) Organizing

Organizing is concerned with decision of the total construction work into manageable
departments/sections and systematically managing various operations by delegating specific tasks
to individuals.

(d) Staffing

Staffing is the provision of right people to each section / department created for successful
completion of a construction project.

(e) Directing

It is concerned with training sub ordinates to carryout assigned tasks, supervising their work and
guiding their efforts. It also involves motivating staff to achieve desired results.

(f) Controlling

It involves a constant review of the work plan to check on actual achievements and to discover
and rectify deviation through appropriate corrective measures.

(g) Coordinating

It involves bringing together and coordinating the work of various departments and sections so as
to have good communication. It is necessary for each section to aware of its role and the assistance
to be expected from others.

Importance of Construction Management:

o Construction management practices invariably lead to “maximum production at least cost”.

A good construction management, results in completion of a construction project with in
the stipulated budget.

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o Construction management provides importance for optimum utilization of resources. In

other words, it results in completion of a construction project with judicious use of
available resources.
o Construction management provides necessary leadership, motivates employees to
complete the difficult tasks well in time and extracts potential talents of its employees.
o Construction management is beneficial to society as the effective and efficient
management of construction projects will avoid, escalation of costs, time overrun, wastage
of resources, unlawful exploitation of labor and pollution of environment.

The Construction Project

A project is defined, whether it is in construction or not, by the following characteristics:

- A defined goal or objective.

- Specific tasks to be performed.
- A defined beginning and end.
- Resources being consumed.

The goal of construction project is to build something. What differentiate the construction industry
from other industries is that its projects are large, built on-site, and generally unique. Time, money,
labor, equipment, and, materials are all examples of the kinds of resources that are consumed by
the project. Projects begin with a stated goal established by the owner and accomplished by the
project team. As the team begins to design, estimate, and plan out the project, the members learn
more about the project than was known when the goal was

Projects begin with a stated goal established by the owner and accomplished by the project team.
As the team begins to design, estimate, and plan out the project, the members learn more about the
project than was known when the goal was first established. This often leads to a redefinition of
the stated project goals.

The Project Life-Cycle

The acquisition of a constructed facility usually represents a major capital investment, whether its
owner happens to be an individual, a private corporation or a public agency. Since the commitment
of resources for such an investment is motivated by market demands or perceived needs, the

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facility is expected to satisfy certain objectives within the constraints specified by the owner and
relevant regulations.

There is no single best approach in organizing project management throughout a project's life
cycle. All organizational approaches have advantages and disadvantages, depending on the
knowledge of the owner in construction management as well as the type, size and location of the
project. It is important for the owner to be aware of the approach which is most appropriate and
beneficial for a particular project. In making choices, owners should be concerned with the life
cycle costs of constructed facilities rather than simply the initial construction costs. Saving small
amounts of money during construction may not be worthwhile if the result is much larger operating
costs or not meeting the functional requirements for the new facility satisfactorily. Thus, owners
must be very concerned with the quality of the finished product as well as the cost of construction
itself. Since facility operation and maintenance is a part of the project life cycle, the owners'
expectation to satisfy investment objectives during the project life cycle will require consideration
of the cost of operation and maintenance. Therefore, the facility's operating management should
also be considered as early as possible, just as the construction process should be kept in mind at
the early stages of planning and programming. In summary the project phases can be summarized
as follows:

Preconstruction phase. The preconstruction phase of a project can be broken into conceptual
planning, schematic design, design development, and contract documents.

Conceptual design:

 Very important for the owner.

 During this stage the owner hires key consultants including the designer and project
manager, selects the project site, and establish a conceptual estimate, schedule, and
program.
 The owner must gather as much information as possible about the project.
 The most important decision is to proceed with the project or not.

Schematic design:

 During this phase, the project team investigates alternate design solutions, materials and
systems.
 Completion of this stage represents about 30% of the design completion for the project.

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Design development:

 Designing the main systems and components of the project.

 Good communication between owner, designer, and construction manager is critical during
this stage because selections during this design stage affect project appearance,
construction and cost.
 This stage takes the project from 30% design to 60% design.

Contract documents:

 Final preparation of the documents necessary for the bid package such as the drawings,
specifications, general conditions, and bill of quantities.
 All documents need to be closely reviewed by the construction manager and appropriate
owner personnel to decrease conflicts, and changes.
 With the contract documents are almost complete; a detailed and complete cost estimate
for the project can be done.

Procurement phase (Bidding and award phase)

The project formally transits from design into construction.

This stage begins with a public advertisement for all interested bidders or an invitation for specific
bidders. - In fast-track projects, this phase overlaps with the design phase.

If the project is phased, each work package will be advertised and bid out individually.

It is very important stage to select highly qualified contractors. It is not wise to select the under-
bid contractors.

Construction phase

The actual physical construction of the project stage.

This stage takes the project from procurement through the final completion.

It is the time where the bulk of the owner’s funds will be spent.

It is the outcome of all previous stages (i.e., good preparation means smooth construction).
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The consultant will be deployed for contract administration and construction supervision.

Changes during construction may hinder the progress of the project.

Closeout phase

Transition from design and construction to the actual use of the constructed facility.

In this stage, the management team must provide documentation, shop drawings, as-built
drawings, and operation manuals to the owner organization.

The as-built drawings are the original contract drawings adjusted to reflect all the changes that
occurred.

Assessment of the project team’s performance is crucial in this stage for avoiding mistakes in the
future.

Actual activity costs and durations should be recorded and compared with that was planned. This
updated costs and durations will serve as the basis for the estimating and scheduling of future
projects.

Construction Projects Participants

The Owner (The Client)

The owner is the individual or organization for whom a project is to be built under a contract. The
owner owns and finances the project. Depending on the owners’ capabilities, they may handle all
or portions of planning, project management, design, engineering, procurement, and construction.
The owner engages architects, engineering firms, and contractors as necessary to accomplish the
desired work.

Public owners are public bodies of some kind ranging from agencies from the country level to the
municipal level. Most public projects or facilities are built for public use and not sold to others.
Private owners may be individuals, partnerships, corporations. Most private owners have facilities
or projects built for their own use or to be sold, operated, leased, or rented to others.

In order to achieve success on a project, owners need to define accurately the projects objectives.
They need to establish a reasonable and balanced scope, budget, and schedule. They need to select
qualified designers, consultants, and contractors.
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The Design Professionals

Examples of design professionals are architects, engineers, and design consultants. The major role
of the design professional is to interpret or assist the owner in developing the project’s scope,
budget, and schedule and to prepare construction documents. Depending on the size and
sophistication of the owner, the design professional can be part of the owner’s group or an
independent, hired for the project. In some cases design professional and construction contractor
together form a design-build company.

Architect: An architect is an individual who plans and design buildings and their associated
landscaping. Architects mostly rely on consulting engineers for structural, electrical, and
mechanical work.

Engineer: The term engineer usually refers to an individual or a firm engaged in the design or
other work associated with the design or construction. Design engineers are usually classified as
civil, electrical, mechanical depending upon their specialty. There are also scheduling, estimating,
cost, and construction engineers.

Engineering-Construction Firm: An engineering-construction firm is a type of organization the

combines both architect/engineering and construction contracting. This type of company has the
ability of executing a complete design-build sequence.

The Construction Professionals

The constructions Professional are the parties that responsible for constructing the project. In
traditional management where the owner, design professional, and contractors are separate
companies, the contractor would be termed a prime contractor. The prime contractor is responsible
for delivering a complete project in accordance with the contract documents. In most cases, the
prime contractor divides the work among many specialty contractors called subcontractors.

The Project Manager

The project manager is the individual charged with the overall coordination of the entire
construction program for the owner. These include planning, design, procurement, and
construction. Among his/her duties:

 Clear definitions of the goals of the project.

 Investigate alternative solutions for the problems.
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 Develop a detailed plan to make the selected program reality.

 Implement the plan and control the project.

Construction Manager: The construction manager is a specialized firm or organization which

administrates the on-site erection activities and the consulting services required by the owner from
planning through design and construction to commissioning. The construction manager is
responsible for design coordination, proper selection of materials and methods of construction,
contracts preparation for award, cost and scheduling information and control.

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Competition and price formation in construction

Competition is an essential feature of the market economy that represents the confrontation
between economic agents in order to attract consumer customers through more convenient prices,
through better quality of material goods and services in order to obtain higher profits. It expresses
the specific, interested behavior of all property subjects in the conditions of the market economy.

The tools of the competition fight

1. Economic:

• Reducing the costs of goods below those of competitors

• Reduction of sales prices
• Raising the quality of material goods and services
• Addressing customer facilities

2. Extraeconomic:

• providing general information for all clients

• sponsoring actions of local and national interest
• moral pressures

Competition is influenced by the following factors:

• the number and economic power of the buyers, of the sellers in one or more branches.
• The degree of product differentiation
• The degree of market transparency
• The possibility (facility) or limitation of producers to enter the market in one field or
another in one branch or another.
• The level of economic development
• Political and international situation

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Competition has the following economic effects:

- stimulates the general progress through emulation and the competition that takes place
between the economic agents
- determines the decrease of the sale prices, being the opposite of the expensive one
- determines in time the progressive equalization of incomes and living conditions.
- for some companies (economic agents) the competition determines their bankruptcy,
turning into its opposite

Types of competition:

1. perfect competition: all producers succeed or can vandalize all their production at the price
of the piece without being influenced by consumer water, who can buy as much as he
wants, as much as he needs from the respective good. Perfect competition presupposes the
existence of homogeneity of products, concentration of products or production on market
requirements. The possibility of easily entering the market of producers and products.
2. monopolistic competition: the situation in which producers in variable numbers make
products that they challenge on the market under certain conditions.
3. imperfect competition: producers can influence buyers both through their unilateral actions
and through the price level or levels. The state intervenes in the market to avoid unfair
competition through legal measures, directed against the abuse of the monopoly. The state
ensures the limitation of the excess of competition by limiting the access of other producers
on the market by imposing the observance of some quality standards of the created
products.

The price is a sum of money that the seller receives in exchange for an economic good, a monetary
expression of the recognized value of the respective good, it is the result of the confrontation of
the economic interests of the bearers of supply and demand.

The factors on which the market price depends are:

1. Application specific factors:

 Represents the utility of the goods to be purchased

 Level, ability of the buyer to pay
 The difference or the position of buying the same product from another market / other part.
 The purchasing power of money
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2. Factors specific to the offer:

 The production cost and the general consumption of factors in order to achieve the desired
product on the market.
 The number of producers and the goods they make
 The level of presentation on the market of the respective product as well as the level of
services offered.
 Delivery time
 Duration and quality of technical assistance for products that are sold
 The formation of prices in the conditions of different types of competition takes into
account the mechanism of these markets: the state intervenes in the field of prices both
through administrative channels and through its bodies in order to carry out the normal
competition on the market of the respective country.

Production cost

The production cost represents, in monetary form, the totality of the expenses made and borne by
the economic agents for the production and sale of material goods and services.

The accounting cost reflects, in money, the expenses actually incurred by the enterprise, which
result from its accounting existence.

The economic cost includes the accounting cost and that consumption of resources that does not
imply actual payments highlighted in the form of expenses, for example: labor consumption of the
company owner, farm, shop, workshop, etc. The economic cost includes, in its structure, the
accounting cost (or the explicit cost) and the implicit cost.

Explicit cost is a notion that indicates the expenses incurred by the company and recorded in the
costs actually paid (the accounting cost itself).

The implicit cost reflects that consumption of resources of the economic agent not included in the
actual cost paid by it. These are the labor costs of the owner of the respective economic unit, which
are not recorded in the form of the employee who would be entitled, as part of the costs, the rent
that would be due to the use of their own buildings, the interest that would be due to the use of
equity.

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The opportunity cost represents the value of the best chance sacrificed, or the cost of sacrifice, of
giving up in the process of choosing the optimal option for allocating resources.

The size of the cost is determined by the totality of the expenses made for the production and sale
of economic goods, at a given moment. The cost size can be calculated:

 Per unit of product (for example, one ton of aluminum, one ton of wheat or fruit, one cubic
meter of methane gas, one car, tool, etc.) - license question
 On the entire homogeneous production carried out by one company or another.
 On the whole heterogeneous production obtained by the enterprise.

Types of cost

The global cost represents the set of expenses necessary to obtain a given production volume, from
a good.

The fixed cost (FC) reflects those expenses of the enterprise which, in the short term, are
independent of the volume of production obtained: depreciation of fixed capital, rents, salaries of
administrative staff, maintenance costs, lighting, heating, interest, etc.

The variable cost (VC) expresses those expenses of the enterprise that change depending on the
production volume.

The total cost (TC) represents the sum of the variable fixed costs TC = FC + VC

Average cost (MC) or unit cost expresses the overall costs per unit of product (or result)

The Fixed Average Cost (FMC) represents the fixed cost per unit of product: FMC = FC / Q

Average Variable Cost (AVC) or variable cost per product unit: AVC = VC / Q

Total Average Cost (TMC) expresses the total global cost per product unit and is determined by
the relationships: TMC = TC / Q or TMC = FMC + AVC

The Marginal Cost (MgC) expresses the total cost increase (TCI) required to obtain an additional
production unit. Marginal cost measures the variation of the total cost for an infinitely small
variation of the production quantity. The epithet "marginal" is, in economics, synonymous with
"additional": MgC = ∆TC / ∆Q.

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Minimize cost

The average cost (or per unit of product) is not a constant size.

Factors on which the evolution of the average cost depends:

• Consumption of production factors per unit of product (consumption of material resources

and labor force), which decreases in terms of improving technical production equipment
and manufacturing technologies, raising the level of qualification.
• Productivity level
• The price of the utility production factors that are purchased raw materials, materials,
machines, equipment, fuel, energy, wages to be paid to workers, etc.

The relationship between cost and productivity

At a given price of production factors, the average cost (MC) and Cmg are inversely related.

Price formation in a market with perfect competition

A perfectly competitive market requires bidders and buyers to be in large numbers, to act only on
the basis of principles of rationality and to be permanently and correctly informed on the
relationship between supply and demand. In addition to the specific requirements of a market
specific to perfect competition, there are also a series of requirements and restrictions that must be
met by companies operating in such a market. Under these conditions, a company is said to be
absolutely competitive if it does not have the power to change the price it receives for the products
offered. A perfectly competitive company accepts the price as determined by the market for two
reasons:

 because it sells a product that is undifferentiated from the products of other companies on
the market;
 because it holds a small share of the total market.

Under these conditions, according to the rule and as an effect of the descent of the slope of the
curve that shows the evolution of the demand on the market, the market price can be changed only
if the quantity of goods sold changes; for example, the quantity must decrease to produce an
increase in price. Because each perfectly competitive company owns only a small fraction of the
total market through sales, no company can change the price by offering more or less.

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Characteristic of this market is the equilibrium price. When the equality between the required
quantities (C) and those offered (O) is achieved, for a certain economic good, the equilibrium price
(Pe) appears. A deviation of the market price from the equilibrium point causes an excess of supply
- a temporary surplus of goods on the market - or an excess of demand - a situation of shortage or
lack of goods on the market. Market forces will move the price level, in each case, to new
equilibrium points.

Thus, the perfectly competitive company accepts the price as it is determined by the market and
decides if it will offer and how much it will offer. Its profit statement can be registered in one of
the following situations:

 Obtain pure profits - the resources invested in the respective business are capitalized more
than the investment in any other business. Profit is maximized at the point where the
distance between the price and the average cost is the largest;
 Obtain a pure zero profit - the resources employed by the company bring an identical gain
to the one that could be obtained by engaging in an alternative activity;
 The gain is lower than the possible one obtained by engaging the resources in another
activity. Sometimes the costs of such a company are higher because it has better
alternatives compared to other companies on the market.

The balance of the market, depending on the possibility of adapting the supply to demand, is
achieved in different periods of time. From this point of view in practice we meet:

 Short-term balance - companies can produce or sell more by using existing equipment,
technologies.
o The supply and demand curves are shifting as a result of changes.
o The supply curve registers changes depending on the production of each producer,
the appearance of new combinations of production factors, the introduction of
technical progress, etc.
o The demand curve changes due to changing consumer preferences, prices for other
goods, revenues and even the number of consumers. The displacement of one of
the curves changes the equilibrium point, and the restoration of the balance will
be done at a different level than the initial one.
 The long-term balance determines the abandonment of some old capacities - either of
production or of commercialization - the construction of new capacities, the entry or exit
of the branch of some companies. To achieve this balance, the price must ensure the

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equality of supply and demand, obtaining a normal profit, if the costs are identical, and
ensure the overprofit that would attract the entry of new companies.

Price formation in markets with imperfect competition

Imperfect competition is determined by the lack of atomicity of bidding or buying agents and the
heterogeneity of the market caused by the qualitative differences between goods, as well as by the
wider or narrower range of associated services. Imperfection can come from both bidders and
consumers.

Thus, a strong company operating on a market with imperfect competition, can exercise control
over the price of the products offered if it meets one of the following conditions:
o produces and offers a large part of the existing products on the market;
o offers a product that distinguishes or differentiates itself from competing products.
For such a firm, the ability to raise the price and sell a smaller quantity or to lower
the price and sell a larger quantity means to deal with a sloping downward curve of
demand.

The way of manifestation on the consumer's market contributes to the shaping and development
of a market with imperfect competition. This is because consumer behavior, on the one hand, is
an expression of his preferences, and, on the other hand, is a consequence of objective and
subjective factors that give him very heterogeneous forms of manifestation and materialization of
the system of adaptation to certain limits and conditions.

Taking into account the multitude of existing conditions, in the market with imperfect competition
there are several types of prices, of which more representative are:

 The monopoly price. In such a situation, the company meets the entire market demand.
The causes of the monopoly situation can be found in:
o the impossibility of entering the market of other companies;
o technical barriers;
o the advantage of having unique resources;
o the advantage of having top technologies (industrial, agricultural, commercial,
transport, etc.);
o having exceptional managerial talents;
o the existence of specific legal conditions.

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As a rule, the long-term monopoly price is higher than the price resulting from the existence of a
competitor on the market. Monopolistic companies obtain profit maximization by offering a
quantity at which the marginal income is equal to the marginal cost.

 Monopolistic price - is formed in the context of an imperfect monopolistic

competition. In such a situation, on the market there are several bidders who hold,
separately, a certain share of the respective market; each of them differentiates its
products and creates a state of 'monopoly' for its product or brand - product brand, as
the manufacturer's brand or trade mark, as the distributor's brand.

The products are presented in a way that encourages consumer loyalty to the supplier's brand. If
the image of the offered product covers a larger part of the market, the bidder has the possibility
to set a high price. To this phenomenon is added the structure and quality of services related to the
product, in such a context, some consumers prefer to buy outerwear in a small and intimate store,
where the staff is friendly and always kind. Others do the same shopping in big stores, with little
staff around. The physical characteristics of the garments are the same, but the customer who wants
to consume more services (besides buying clothes) will look for the smaller store where the price
is higher. The presence and amplification of the services implies a higher cost, found in the sale
price.

 The price of oligopoly. The market with oligopoly competition is characterized by the
existence of 2-4 bidders, either producers or distributors, who have the possibility to
influence the price, because they have the largest market share, between these bidders
can intervene a market sharing agreement and setting higher prices. Such a
phenomenon can occur because it is known that the existence of large companies
capitalizes more efficiently on production factors, production technologies and
distribution networks, thus having no obligation to produce goods differentiated
between them. In turn, each company has a certain control over the price of the product
made, but a limited control, through the competition exercised by the available
substitutable products. For homogeneous products on such a market, it is less
appropriate to practice price differentiation and, consequently, each company must sell
the product it makes at a price aligned with that of competitors.

In such a market, where competition is based on certain tacit agreements, when there is a change
in price, all companies make that change. Large or remarkable differences appear between the

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prices of products that consumers consider less recommended for substitution. This is the case, for
example, with luxury cars or those brands of products that attest to a certain social position.

Elements of Construction Industry Prices

From the supply side, the price of the output of construction activity is a function of the following
factors:

Direct inputs: These include materials, labor, energy, etc. Direct inputs generally vary in
proportion to output.
Indirect inputs and overheads: These include depreciation, administrative expenses, etc.
These are generally fixed and do not vary directly with the volume of output.
Productivity: Refers to the efficiency with which inputs are converted into outputs (e.g.
through new technical solutions, increased labor productivity, or more effective
organization of work).
Profit: Is a residual determined by the sales price, and combinations of the three preceding
items. Profit varies widely and may be negative.

The output price for a construction project may change for any one or more of the following
reasons:

o widening or narrowing of profit margins due to changes in market conditions (i.e.

irrespective of changes in costs);
o increases or decreases in the prices of direct inputs;
o changes in productivity resulting in changes in the quantity of direct inputs per unit of output.

On the demand side, the price actually paid by the purchaser or final owner of the output of the
construction activity includes a number of additional cost elements paid by the purchaser. These
include the price of the land, costs of obtaining planning permission, taxes and connection fees,
insurance, professional fees (legal, architects, engineers), real estate agent fees, land registry
charges, etc.

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Organizing tenders for construction projects

Auctions carried out in the management of construction projects

Possible forms of auction are:

 open public auction, without pre-selection;

 open public auction, with pre-selection;
 restricted public auction and as an exception the acquisition from a single source (direct
entrustment)

Acquisition from a single source (direct entrustment) as an exception. The auction must ensure the
selection of the best offer from a technical, economic, social, financial, ecological, etc. point of
view.

Strategic selection of projects

The process of elaborating the offer consists of the following distinct phases: planning the offer,
the final decision of participation, drafting the technical offer, calculating the price, presenting and
following the offer, awarding and concluding the contract.

The planning of the offer consists in the analysis of the company's position, the preliminary
decision to participate in the auction, the establishment of the offer elaboration team, the offer
planning and the elaboration of the preliminary offer guidelines.

The final decision to participate consists in: receiving the tender or purchasing the specifications,
reading the tender (specifications), the final decision to participate in the auction, elaboration of
the final directives for participation in the tender, preparation of the work agenda and working
session of the team making the offer.

The drafting of the technical offer stipulates: the technical conditions required by the
specifications, the implementation time of the project, the degree of involvement of the
beneficiary, the financial capacity of the company to support the project, the required guarantees
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(guarantees of supply / participation / good execution), allocation and availability of human

resources, availability of equipment specific to the operations required by the project
implementation, experience in carrying out similar projects, the bidder's position vis-à-vis other
suppliers and the competitive environment.

The price calculation is done by the "bottom-up" technique.

The presentation and follow-up of the offer includes: handing over the offer, supporting the offer
(pre-qualification, drafting the technical offer in the final version, approving the technical offer,
drafting and submitting the commercial offer), awarding the project.

Adjudication and conclusion of the contract

Bidding planning in construction project management

The main planning elements of the elaboration of the offer are: the elaboration of agreements with
third parties, the evaluation of the human resources and mobilizable materials, the verification of
the offer planning.

The conclusion of agreements with third parties consists of either association agreements (the two
partners share costs, risks and profit proportionally) or distribution agreements (the supplier of
products or services uses the other contracting party as a distribution channel for its products).

The evaluation of mobilizable human and material resources consists in determining the internal
limitations that can compromise or endanger the project.

The verification of the bidding planning is performed through the specific TQM (Total Quality
Management) procedures in order to correct some non-conformities or to avoid some financial
losses (at least once a year).

Calculating the value of offers

Presentation and follow-up of the offer in the management of construction projects

The presentation of the offer is made in accordance with the "Specifications". The specifications
are one of the basic documents for designing the offer and contain several sections.

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The section of the "Specifications" "Instructions for tenderers" regulates the presentation and
support of the tender. This phase is extremely important because it regulates the technical and
commercial criteria established by the specifications, often using a subjective factor of an artistic
nature resulting from the offer graphics, clarity and quality of the presentation. An important role
belongs to the image of the bidders from the previous experience of the commission members.

Estimating the value of offers - volume of works

The calculation of the volume to be executed for an article of works is made on the basis of the
pre-measurement of the work. This operation consists in: identifying the estimate item based on
the conventional symbol, the clear name of the estimate item, calculating the quantities based on
the quotas in the execution drawings, specifying the unit of measurement of the estimate item.

Estimating the value of offers - resource consumption

The consumption of resources per work unit is found in the indicative norms of resource
consumption and includes: the basic version and corrections for special situations.

Within the basic variant, the consumptions corresponding to precise situations specified rigorously
in the statement are indicated; for some situations different from those considered in the basic
version, corrections are established.

When elaborating the indicative consumption norms, it is necessary to specify the hypothesis in
which the works will be executed (level of current technique, average organization conditions with
new materials, average heights, artificial or natural light, ambient temperature, working front,
degree of mechanization etc.).

Estimating the value of offers - purchase prices

For calculating the value of the offer, the following elements are included: the manufacturer's price
(excluding VAT) for materials, the hourly tariff wages of the directly productive workers, the
tariffs per hour of effective operation of the equipment, the transfer tariffs, the tariff for
transporting equipment working hours, related fees.

The manufacturer's price (excluding VAT) for imported materials includes taxes and customs
commission. The tariffs per hour of effective operation of the equipment are established by
summing the costs of depreciation and maintenance of the equipment with fuel, with the salaries

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of drivers (including CAS and unemployment fund), indirect costs and related profit if the
equipment is rented.

Estimating the value of offers - the size of the profit

The size of the profit is determined by the relationship: Income - Expenses.

The revenues are determined by the contractual price for the construction works.

The expenses are: direct and indirect.

Direct costs are calculated by weighting the volume of works (from pre-measurements) with the
prices per unit of measure of the estimate item in the price analysis.

Indirect costs are calculated on the basis of total direct costs (for materials, labor, equipment and
transport) multiplied by the coefficient provided in legislative rules.

Estimating the cost for bidding

Estimating the cost for bidding is a very important stage of financial management, because it
decisively influences the winning, respectively the loss of the auction. The component elements
of the cost for bidding are: material costs, labor and equipment costs, financial consequences of
managerial options and execution schedule, general expenses (of the project and office), the
builder's addition and insurance. The builder's addition is estimated at 5 to 20% of the estimated
cost of the project and includes a number of risk margins.

Construction insurance has played an increasing role in recent years. A contract insurance is an
agreement by which a company

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The production process in constructions

The production process in constructions is defined as the set of work processes and natural
processes that take place successively or in parallel in order to achieve quantitative and qualitative
transformations of construction materials and installations for processing, commissioning and / or
assembly by specialized staff, with the help of car complexes that are built as they enrich their
track record. The final result of the work process is an immovable object necessary to satisfy some
social needs. Any production process begins and ends with a work process.

Components of the construction production process

The production process in constructions is broken down into different elements such as: operation,
phase, passage, and movement.

The operation is that part of the process of homogeneous work from a technological point of view
which constitutes the object of a labor norm and which is executed in a predetermined time interval
by an executor on a certain job with a specified endowment.

The phase is a subdivision of the operation characterized by the use of the same work tool and the
same technological regime in which the object of work undergoes a single technological
transformation.

The transition is a part of the phase that is repeated identically with the same work regime on the
same workplace with the same tools and devices.

Movement is part of the phase in which the worker uses a certain anatomical organ of his.

Classification of production processes in constructions

According to the criterion of the degree of mechanization of the works, the production processes
from constructions-assembly can be: manual processes, manual-mechanical processes and
mechanized processes.

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Manual processes are performed by workers with the help of work tools.

The manual-mechanical processes are performed by the worker partly with the help of his
anatomical tools and / or organs and partly with the help of machines.

The mechanized processes consist in the supervision of the work process by the worker, the
production process being executed entirely by the machine.

Parameters for organizing the production process in constructions

The organizational parameters of the production process in constructions are: the volume of works,
the volume of work and the work formation.

The volume of works represents the totality of construction and assembly works for a given process
taken from pre-measurements or in the lists of works expressed in natural units of measurement.

The workload represents the amount of labor expressed on the basis of the time norm, expressed
in man-hours or man-days, necessary for the execution of a given volume of works.

The work formation is an auxiliary parameter that can be used together with the work volume for
determining the parameters for the development of construction works over time. Depending on
the size, there are minimum work teams, work teams (consisting of several minimum work teams),
complex brigades (consisting of several specialized and complex teams) and specialized brigades
(consisting of several teams with the same specialization).

Management of subcontractors

Recourse to subcontracting of construction works has the effect of contradictory trends from the
contractor's point of view because, on the one hand, it increases the degree of direct control of the
general contractor regarding the quality, deadlines and costs of project execution, and, on the other
hand, increase the expenses directed by the new participants (subcontractors). From the
calculations performed by different experts, it resulted that in the end, the subcontracting of
construction works has the following decisive economic advantages:

- premises for increasing the quality of the works as a result of the specialization of the
subcontractors who have specialized labor force, equipment and site organization objects;

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- increasing the volume of contracted works for which the general contractor does not have
sufficient capacity;

- facilities for winning tenders in the territory by large contractors, with the involvement of small
local construction companies that are specialized on the local market and can provide cost
reductions to eliminate the transport of equipment and staff of the general contractor;

- substituting the weak experience of the general contractor in certain fields with the competence
of the subcontractors.

All these advantages ensure the minimization of the risks associated with the execution of the
project in the hypothesis of using specialized enterprises, both in terms of quality, deadlines and
costs of project execution.

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Methods of programming the construction activity

Study of deadlines for project activities

The network schedule, the basic element of planning a complex objective or project, is built by
going through the following stages:

 the component activities are identified, and the moments of their conclusion allow the
identification of the events;
 the order of the events is specified
 the network-graph of the development of activities and events is constructed starting with
the initial moment (0 or 1, which coincides with the origin of the graph and ending with the
final event n);
 for the purpose of planning the deadlines for carrying out the various events, the network
thus represented (to which is added the information regarding the estimation of the durations
of the activities) supposes the use of some numerical processing or of the simulation
technique. For any event, the minimum / maximum terms and the start / end times are
determined, respectively the time reserve.

Methods of operational planning of construction projects

Traditionally, the economic-mathematical modeling used for planning and scheduling the
development of different activities in a construction project is done with the help of network
analysis. Network type graphs represent construction projects through networks consisting of
oriented nodes and arcs.

Network-type graphs allow optimizations to be made by the critical path analysis method (ADC
or CPM - Critical Path Method) or PERT (Program Evaluation and Review Technique), both
methods facilitating the mathematical modeling of activities for complex projects. For this, the
monitoring of the achievement of complex objectives can be done with the electronic computer,
there are numerous dedicated software applications.

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PERT method used in programming construction projects

The PERT method (in the PERT-time or PERT-cost versions) operates with random durations of
activities (building a stochastic model). In order to determine the duration of a complex project of
activities, in case of the impossibility to appreciate by a deterministic quantity the durations of the
activities, estimates are used (in the optimistic variant, the pessimistic variant and the most
probable termination term). This situation determines a probabilistic character of the total duration
of the project realization.

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Estimation of the construction costs

Construction cost estimating is the process of forecasting the cost of building a physical structure.
Of course, builders and clients both worry about the financial impact of cost overruns and failing
to complete a project. That’s why they devote time and effort to estimating how much a project
will cost before deciding to move forward with it. Clients considering large projects often seek
multiple cost estimates, including those prepared by con

Construction cost estimating is the process of forecasting the cost of building a physical structure.
Of course, builders and clients both worry about the financial impact of cost overruns and failing
to complete a project. That’s why they devote time and effort to estimating how much a project
will cost before deciding to move forward with it. Clients considering large projects often seek
multiple cost estimates, including those prepared by contractors and those calculated by
independent estimators.

Key components of a cost estimating

A cost estimate is a summation of all the costs involved in successfully finishing a project, from
inception to completion (project duration). These project costs can be categorized in a number of
ways and levels of detail, but the simplest classification divides costs into two main categories:
direct costs and indirect costs.

 Direct costs are broadly classified as those directly associated with a single area (such as
a department or a project). In project management, direct costs are expenses billed
exclusively to a specific project. They can include project team wages, the costs of
resources to produce physical products, fuel for equipment, and money spent to address
any project-specific risks.

 Indirect costs, on the other hand, cannot be associated with a specific cost center and are
instead incurred by a number of projects simultaneously, sometimes in varying amounts.
In project management, quality control, security costs, and utilities are usually classified

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as indirect costs since they are shared across a number of projects and are not directly
billable to any one project.

A cost estimate is more than a simple list of costs, however: it also outlines the assumptions
underlying each cost. These assumptions (along with estimates of cost accuracy) are compiled into
a report called the basis of estimate, which also details cost exclusions and inclusions. The basis
of estimate report allows project stakeholders to interpret project costs and to understand how and
where actual costs might differ from approximated costs.

Beyond the broad classifications of direct and indirect costs, project expenses fall into more
specific categories. Common types of expenses include:

 Labor: The cost of human effort expended towards project objectives.

 Materials: The cost of resources needed to create products.
 Equipment: The cost of buying and maintaining equipment used in project work.
 Services: The cost of external work that a company seeks for any given project (vendors,
contractors, etc.).
 Software: Non-physical computer resources.
 Hardware: Physical computer resources.
 Facilities: The cost of renting or using specialized equipment, services, or locations.
 Contingency costs: Costs added to the project budget to address specific risks.

Major cost estimating techniques: best uses for each

To create accurate estimates, cost estimators use a combination of estimating techniques that allow
for varying levels of accuracy. While the cost estimator always aims to create the most accurate
estimate possible, they may have to start with less accurate estimates and revise once project scope
and deliverables are fleshed out. The most widely used cost estimating techniques are:

Analogous estimating: Like expert judgment, analogous estimating — also called top-down
estimating or historical costing — relies on historical project data to form estimates for new
projects. Analogous estimating draws from a purpose-built archive of historical project data, often
specific to an organization. If an organization repeatedly performs similar projects, it becomes

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easier to draw parallels between project deliverables and their associated costs, and to adjust these
according to the scale and complexity of a project.

Analogous estimating can be quite accurate if used to form estimates for similar projects and if
experts can precisely assess the factors affecting costs. For example, a similar project conducted
three years ago might be used as the basis for a new project cost estimate. Adjust the estimate
upward for inflation, downward for the amount of resources required, and upward again for the
project’s level of difficulty. These adjustments are typically stated as percentage changes — a new
project might require 10 percent more preparation time and 15 percent more on resources.
However, project management professional Rupen Sharma stresses the need to make sure that
projects really are comparable since projects that appear similar, such as road construction, can
actually cost vastly different amounts depending on other factors — say, local landscapes and
climates.

Bottom-up estimating: Also called analytical estimating, this is the most accurate estimating
technique - if a complete work breakdown structure is available. A work breakdown
structure divides project deliverables into a series of work packages (each work package
comprised of a series of tasks). The project team estimates the cost of completing each task, and
eventually creates a cost estimate for the entire project by totaling the costs of all its constituent
tasks and work packages — hence the name bottom-up. Bottom-up estimates can draw from the
knowledge of experienced project teams, who are better equipped to provide task cost estimates.

While deterministic estimating techniques such as bottom-up estimating are undoubtedly the most
accurate, they can also be time-consuming, especially in large and complex projects with
numerous work breakdown structure components. It is not unusual for definitive estimates to also
use techniques such as stochastic, parametric, and expert-judgment-based estimating (if these have
proved suitably accurate in early estimates). That said, bottom-up estimating is also the most
versatile estimating technique and you can use it for many types of projects.

Parametric estimating: For projects that involve similar tasks with high degrees of repeatability,
use a parametric estimating technique to create highly accurate estimates using unit costs. To use
parametric estimating, first divide a project into units of work. Then, you must determine the cost
per unit, and then multiply the number of units by the cost per unit to estimate the total cost. These
units might be the length in feet of pipeline to be laid, or the area in square yards of ceiling to be
painted. As long as the cost per unit is accurate, estimators determine quite precise and accurate
estimates.
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However, as project management professional Dick Billows, Chief Executive Officer of

4PM.com, cautions, parametric estimating does not work well with creative projects or those with
little repeatability. It is difficult, for example, to come up with an accurate cost per chapter for
editing a book written by 12 different authors, since each chapter is likely to require a different
amount of work. Similarly, a writer penning a fantasy novel on commission may find herself
struggling to advance the story at some points and fully immersed in its flow at others. Therefore,
parametric estimating is a good choice only for skill-based projects with uniform, repeatable tasks.

Cost of quality: The cost of quality is a concept used in project management - and more broadly
in product manufacturing - to measure the financial cost of ensuring that products meet agreed-
upon specifications. It usually includes the costs of preventing, identifying, and addressing defects.
As an aspect of quality management, the cost of quality is usually an indirect project cost.

Delphi cost estimation: An empirical estimation technique based on expert consensus, Delphi
estimation can help resolve discrepancies among expert estimates. A coordinator has experts
prepare anonymous cost estimates with rationales; once these anonymous estimates are submitted,
the coordinator prepares and distributes a summary of the responses and experts create a new set
of anonymous estimates. This exercise is repeated for several rounds. The coordinator may or may
not allow the experts to discuss estimates after each round. As the exercise progresses, the
estimates should converge (indicating growing consensus between the estimators). When an
estimate consensus has been reached, the coordinator ends the exercise and prepares a final
consensus-based estimate.

Empirical costing methods: Empirical costing methods draw from previous project experiences
using software- or paper-based systems. These methods work well for projects that are similar and
frequently conducted in certain industries. A project manager wanting to obtain an empirical cost
estimate completes a form detailing the project’s characteristics and parameters, and the system
estimates a cost based on the kind of project. Since empirical costing methods draw from existing
data and are increasingly automated, they are accurate, time-effective choices for less complicated
projects. The Royal Institution of Chartered Surveyors’ Building Cost Information Service (BCIS),
which computes rebuilding costs for houses, is an example of an empirical costing method.

Expert judgment: Most commonly used in order of magnitude and intermediate estimates, expert
judgment estimating is conducted by specialists who know how much similar projects have cost
in the past. As such, it relies mainly on drawing parallels between past and future projects to create
and adjust estimates. Since any two projects are unlikely to be identical and project work is
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typically complex, expert judgment estimates are presented as a range. While a wide range
typically means these estimates have limited use, project management professional Billows points
out that such broad estimates are only meant to indicate project feasibility and provide a ballpark
figure to hold project managers accountable. In this regard, they “are better than commitments you
can’t keep,” Billows says.

Reserve analysis: Reserve analysis is an umbrella term for a number of methods used to determine
the size of contingency reserves, which are budgetary allocations for the incidence of known risks.
One outcome of reserve analysis is a technique called padding, which involves increasing the
budgeted cost for each scheduled activity beyond the actual expected cost by a fixed
percentage. Critical path activities may have larger percentages assigned as padding. The Project
Management Institute (PMI) also suggests other methods for managing contingency reserves,
including the use of zero-duration activities that run in tandem with scheduled activities and the
use of buffer activities that contain both time and cost contingency reserves.

Resource costing: Resource costing is a simple mathematical method to compute the costs of
hiring resources for a project. It is easily done by multiplying the hourly cost of hiring a resource
by the number of projected employment hours.

Three-point estimating: Three-point estimating has roots in a statistical method called

the Program Analysis and Review Technique (PERT), which is used to analyze activity, project
costs, or durations by determining optimistic, pessimistic, and most likely estimates for each
activity. Three-point estimating uses a variety of weighted formula methods to compute expected
costs/durations from optimistic, pessimistic, and most likely costs/durations. One commonly used
formula for creating estimates is:

Expected value = [Optimistic estimate + Pessimistic estimate + (4 x Most likely estimate)] ÷ 6

The standard deviation is also calculated to create confidence intervals for estimates:

Standard deviation = (Pessimistic estimate – Optimistic estimate) ÷ 6

Three-point estimating can construct probability distributions of estimates in a number of fields.

In project cost estimating, estimators may create a three-point estimate of cost using optimistic,
pessimistic, and most likely costs. Alternatively, for projects that measure deliverables in units of
time with fixed costs, estimators may use expected durations as the number of units and determine
costs via parametric estimates. However, remember that three-point estimates are only as good as

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their initial optimistic, pessimistic, and most likely estimates - if these are not accurate, the
expected values are useless.

U.S. Government Accountability Office (GAO) 12-step process: The GAO recommends a 12-
step process for creating high-quality cost estimates. Essentially a deterministic estimating
technique, the 12-step process is a systematic approach where estimators select an appropriate
estimating technique for each component of a work breakdown structure, fully identify the
assumptions underlying estimates, and conduct risk and uncertainty analyses for estimates.

Using cost estimating software: Project management software can simplify, speed up, and
enhance cost estimating. You can use a variety of project management software to create cost
estimates or to determine the levels of uncertainty involved in cost estimates via probabilistic
modeling.

The Monte Carlo method is one example of this modeling approach. It refers to the risk analysis
simulations performed by researchers working on the atomic bomb and named after the gambling
resort in Monaco. The Monte Carlo method produces a range of potential outcomes and offers
probabilities for their occurrence based on different variables.

Vendor bid analysis: This estimating technique is used to supplement internally constructed
estimates. It allows estimators to compare their own estimates with those stated in bids submitted
by vendors, and can provide a useful point of comparison and external perspectives on what a
project should cost.

What makes a good cost estimate?

The usefulness of a cost estimate depends on how well it performs in areas like reliability and
precision. There are several characteristics for judging cost estimate quality. These include:

Accuracy: A cost estimate is only as useful as it is accurate. Aside from selecting the most
accurate estimating techniques available, accuracy can be improved by revising estimates as the
project is detailed and by building allowances into the estimate for resource downtime, project
assessment and course correction, and contingencies.

Confidence level: Since even the best estimates contain some degree of uncertainty, it is important
to communicate the amount of potential variability in any estimate to stakeholders. Confidence
levels can communicate estimates as ranges, such as those produced by three-point estimating
techniques or Monte Carlo simulations.
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Credibility: Stakeholders or sponsors preparing to authorize budgets want to know that estimates
are founded in established fact or in practical experience. Increase the credibility of an estimate by
incorporating expert judgment and by using set values for variables, such as unit costs and work
rates.

Documentation: Since project managers are eventually held accountable to cost estimates, it is
important that the assumptions underlying estimates are identified and recorded in writing, and
that regular budget statements are provided. Thorough documentation precludes
misunderstandings and helps stakeholders understand the reasons behind estimate revisions.

Precision: To reduce the variation in cost estimates due to techniques used, estimators should
compare and corroborate estimates. Cost estimating software makes this fairly easy.

Reliability: Reliability is a concept based on the extent to which historical cost estimates for a
certain type of project have been accurate. For new projects that are similar to successfully-
completed past projects, analogous estimating techniques will allow reliable estimates.

Risk detailing: All projects can be affected by negative risks, so it is important to build allowances
into cost estimates. Thorough risk identification and allocation of contingency reserves is the most
common approach. Estimates should be overestimated rather than underestimated, and estimators
should establish tolerance levels for cost deviation.

Uniformity: For performing organizations that conduct many projects of the same type, expect
unit costs to be reasonably consistent across projects and only adjusted for inflation. This type of
unit cost uniformity is possible for organizations that have undertaken several similar projects,
which enables them to create reference lists for recommended unit costs.

Validity: Confirming the validity of a cost estimate involves checking the underlying data for
accuracy. Improve validity by relying on established cost literature, and on cost indices when up-
to-date literature is unavailable.

Verification: Cost verification is the act of checking that mathematical operations used in an
estimate were performed correctly. Cost verification is much easier if estimates are properly
documented.

In their book Project Management for Business, Engineering, and Technology, project
management experts John M. Nicholas of Loyola University and Herman Steyn of University of
Pretoria, South Africa, say the best estimates are made by teams that include designers, builders,
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suppliers (this is opposed to estimates from more homogenous teams). They describe these diverse
estimating teams as concurrent engineering teams.

The most likely causes of inaccurate project cost estimates

Alternatively, factors that undermine cost estimations include poor raw data or assuming that
resources are 100 percent utilized. Some of the most common pitfalls for cost estimators are:

Lack of experience with similar projects: Accuracy in cost estimating tends to increase as
estimators, project teams, and organizations gain experience working with similar projects.
Inexperienced estimators and project teams may not be familiar with the scope of a project, which
may lead to inaccuracies with - even with deterministic estimating techniques. At an organizational
level, the use of analogous estimating techniques is typically not reliable if the organization has
not conducted similar projects before.

Length of the planning horizon and of the project: Professional estimators stress the importance
of not making premature estimates. As we have discussed, accurate estimating depends on the
degree to which a project is defined. For large, complex projects, approaches such as rolling wave
planning mean that future work is less well defined. It is important that cost estimating practices
reflect this and that cost estimates are revised as more up-to-date information becomes available.
For mega projects that take several years to complete, it’s important to take currency value
fluctuation and political climates into account.

Human resources: Creating accurate estimates becomes more difficult as the number of human
resources involved in a project increases. While it is standard practice to assume that any resource
will only be productive 80% of the time and to create estimates accordingly, it becomes harder to
account for costs in managing and organizing people. This is especially noticeable in project
activities that involve building consensus or coordinating tasks across many people.

Difficulty also arises when estimating costs of human resources via resource costing or parametric
estimating. Both estimating techniques revolve around the concept of unit-based costing, but the
complexities of managing people make it difficult both to obtain accurate unit costs and to forecast
the task completion time accurately. Further, it’s unlikely that workers’ skill levels will be identical
(even if they are classified as such), so some time deviation is inevitable. This shows the value of
systematically overestimating instead of underestimating, especially when dealing with human
workers.

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Several other common mistakes can affect the accuracy of estimates:

Not fully understanding the work involved in completing work packages: This is sometimes
a problem for inexperienced project teams who have not worked on similar projects before.

Expecting that resources will work at maximum productivity: A more appropriate rule of
thumb is to assume 80% productivity.

Dividing tasks between multiple resources: Having more than one resource working on a task
typically necessitates additional planning and management time, but this extra time is sometimes
not taken into account.

Failing to identify risks and to prepare adequate contingency plans and reserves: Negative
risks can both raise costs and extend durations.

Not updating cost estimates after project scope changes: Updated cost estimates are an integral
part of scope change management procedures, as project scope changes render prior estimates
useless.

Creating hasty, inaccurate estimates because of stakeholder pressure: Since project managers
are held accountable for estimates, order of magnitude estimates are a much better choice than
numbers pulled out of thin air.

Stating estimates as fixed sums, rather than ranges: Point estimates are misleading. All
estimates have inherent degrees of uncertainty, and it is important to adequately communicate
these via estimate ranges.

Making a project fit a fixed budget amount: The scope of a project should determine its budget,
not the other way around. As Trevor L. Young explains in his book How to be a Better Project
Manager, estimating is a “decision about how much time and resource are required to carry out a
piece of work to acceptable standards of performance.” The reverse approach — planning projects
to fit budgets — is likely to result in projects that fail to meet requirements and to deliver results.

The estimation process of constructions

Understanding cost estimation requires you to have a basic grasp of the construction process. Here
are the nine basic phases of a building project:

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1. Commissioning a Project: Commissioning is essentially a verification process that ensures a

builder designs, constructs, and delivers a project according to the owner’s requirements. It begins
early in the construction process and can last until up to a year of occupancy or use. A
commissioning provider carries out commissioning, usually a firm with experience in
commissioning buildings that serve particular functions.

2. Determining Requirements: The first real step in constructing a project is a pre-design phase
or planning phase. The pre-design phase involves defining a project’s requirements: what its
function(s) will be, how much it should cost, where it will be located, and any legal requirements
it must comply with.

3. Forming a Design Team: The project owner contracts with an architect who will then select
other specialized consultants to form a design team. Complex projects and projects which require
meeting specific design requirements — such as acoustics or housing hazardous materials — will
have more specialized consultants on board to ensure the design meets requirements. The architect
is generally responsible for overseeing and coordinating the design process, though for some
projects (such as industrial construction), an engineer may be one of the people overseeing design.

4. Designing the Structure: This step deals with the architect creating a series of designs. The
architect works first with the owner to decide on the broad strokes of the design and then
increasingly closely with the other members of the design team to flesh out the structure’s design
in accordance with requirements. Designing thus progresses from a schematic design phase, when
the architect presents a high-level design to the owner for approval, to a design development phase,
when the architect works with the design consultants to decide on specifics of the construction
design. The last step is the construction documents phase, i.e., creating construction drawings and
specifications from which the contractor will build. The specifications, which various participants
in the construction process read, appear in a standard format called the MasterFormat, which
the Construction Specifications Institute developed. Estimators produce and revise cost estimates
for the project as the architect fleshes out the design.

5. Bidding Based on the Scope of Work: Once the construction documents are finalized, they
are released to contractors who wish to bid on the project. Along with these bidding documents,
they include instructions on how to submit bids, a sample of the contract agreement, and financial
and technical requirements for contractors. These documents, which effectively define the scope
of the work, are the basis on which contractors prepare their estimates. For more on how to develop
a statement of work, consult this guide. To ensure fair bidding, all contractors receive the same
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information, and the project owner usually selects the lowest qualified bidder. This bid tabulation
template can help you compile your estimate.

6. Signing the Contract: Once the contractor has been selected, they execute a set of contract
documents with the owner. The contract documents encompass the bidding documents, which now
function as a legal contract between owner and contractor. Contracts can follow a number
of models, depending on how complete the construction design is and how the owner and
contractor bear risks. One of the basic models is a lump sum (also called a stipulated sum or
turnkey) contract, which involves the contractor bidding a fixed sum for the total project and
agreeing upon it when the project’s design is virtually complete. A unit price contract allows for
more flexibility in design by having the owner pay the contractor per number of units they build.
A cost-plus contract, signed when the design is incomplete, has the owner pay for all costs plus a
predetermined fee for the contractor. A variation of this is cost plus a fee with a guaranteed
maximum.

7. Construction: During the construction phase, the contractor oversees building in accordance
with the construction documents. A general contractor will hire specialized subcontractors for
different sets of construction tasks, such as plumbing or foundation work. Throughout the
construction process, the contractor engages in careful cost control, comparing actual expenditure
with forecasted expenditure at multiple points in the construction process. Cost control ensures
that the contractor is actually able to turn a profit. This budget template can help you compare
actual costs to estimated costs.

8. Close-Out: When the builder comes close to finishing a structure, the contractor requests the
architect perform a substantial completion inspection in which the architect verifies the near-
complete status of the project. At this stage, the contractor provides the architect with a document
called the punch list, which lists any incomplete work or needed corrections. After the architect
inspects the structure, they will add any additional incomplete items to the punch list.

9. Completion: After the contractor completes all the incomplete work detailed on the punch list,
the architect performs a final inspection. If the contractor has completed the structure according to
construction drawings and specifications, the architect will issue a certificate of final completion,
and the contractor is entitled to receive the full payment.

An alternative method of project delivery is the design-build process, which integrates building
design and building construction. Instead of contracting first with a design team and then with a

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contractor, the owner contracts with a design-build firm, which handles both functions. The main
strength of this approach is greater alignment and coordination between design and construction
and a reduction of construction missteps. Accountability rests with a single party, which owners
may appreciate. It can also save time and increase efficiency, and design-build processes are likely
to be significantly cheaper than conventional design-bid-construct processes like the one detailed
above.

The main types of construction cost estimates

Since a cost estimate can only be accurate with a well-defined project plan, it’s standard practice
to create multiple estimates during the pre-design and design phases. These become more accurate
as the project’s level of definition increases. The American Society of Professional
Estimators classifies estimates according to a five-level system that becomes increasingly more
detailed and reliable.

 Level 1: Order of Magnitude Estimate: Made when project design has not yet gotten
under way, you only use an order of magnitude estimate to determine the overall feasibility
of a construction.

 Level 2: Schematic Design Estimate: An estimate produced in line with schematic design

 Level 3: Design Development Estimate: An estimate made during the design

development phase

 Level 4: Construction Document Estimate: An estimate based on the construction

drawings and specifications

 Level 5: Bid Estimate: An estimate prepared by the contractor, based on construction

documents. The bid estimate is the basis of the bid price offered to the customer.

A simpler system of classifying estimates features just three primary categories: design estimates,
bid estimates, and control estimates. These category names reflect the way in which you use the
estimates.

 Design Estimates: These estimates, prepared during a project’s pre-design and design
phases, start with an order of magnitude estimate, or screening estimate, which determines
which construction methods and types are most feasible. Next comes the preliminary

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estimate, or conceptual estimate, which you base on the schematic design. Then comes the
detailed estimate, or definitive estimate, which you base on design development. The last
of the design estimates is the engineer’s estimate, which you base on the construction
documents. A simple template can help give an initial assessment of costs involved in a
project.

 Bid Estimates: Contractors prepare bid estimates when bidding to construct the project.
Contractors will draw from a number of data points to prepare their estimates, including
direct costs, supervision costs, subcontractor quotes, and quantity take-offs. (We’ll look at
these in more detail shortly.)

 Control Estimates: Prepared after one signs a contractor agreement and before
construction gets under way, the control estimate functions as a baseline by which you
assess and control actual construction costs. The control estimate also allows contractors
to plan ahead to meet upcoming costs and determine the project’s cost to completion.

A construction cost estimates perspective on building systems

Creating a cost estimate for a project as complicated as a building calls for a systematic way of
enumerating costs. To simplify the process, cost estimators may use the Uniformat system of
viewing a building as a set of seven functional divisions. These are:

 Substructure
 Shell
 Interiors
 Services
 Equipment and furnishings
 Special construction
 Building site work

The RSMeans Square Foot Costs Book, which compiles building cost data according to these
divisions, is a widely used resource for developing cost estimates based on costs per square foot.

Contractors who are bidding for a job will create a document called the bill of quantities, which is
an itemized list of the work and materials required for a construction project. This is a crucial step
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in determining the cost of the work before bidding. Creating a bill of quantities is a four-step
process that used to be done painstakingly by hand on paper and is now usually done with
spreadsheets or specialized software.

1. Taking-Off Quantities: Working from the construction documents, a quantity surveyor will
measure the tasks and items of work in a project. This requires scaling dimensions from
drawings. One will record these in standard units such as area, volume, or length. For
example, you can quantify excavation in cubic meters and steel supports in linear feet. It’s
important to follow one of the standard methodologies, such as the New Rules of
Measurement. The surveyor will list the number of each item in the project.
2. Squaring: Next, the quantity surveyor multiplies the dimensions of the component into
square area and multiplies this by the number of times this work item occurs in the
construction, thus getting the total dimensions, length, volume, and area as applicable.
3. Abstracting: Abstracting is the collecting and ordering of the squared dimensions. Similar
tasks and components are grouped together. Once you have taken off and squared all items
and have obtained total dimensions, they must be merged. You make deductions for any
voids or openings in the building, such as stairs.
4. Billing: This last step simply involves presenting item descriptions and quantities in a
structured format, the bill of quantities. You usually present these in a hierarchy for group,
subgroup, and work section. (Examples include substructure, earthwork, and site
clearance.)

The elements of a construction cost estimate

So what information do estimators use to create an estimate? The following are key terms and
concepts, but be aware that there’s a large degree of overlap between some of them.

 Quantity Take-Off: Developed during the pre-construction phase, a quantity take-off

measures the materials and labor needed to complete a project.
 Labor Hour: The labor hour, or man hour, is a unit of work that measures the output of one
person working for one hour.
 Labor Rate: The labor rate is the amount per hour one pays to skilled craftsmen. This
includes not just the basic hourly rate and benefits, but the added costs of overtime and
payroll burdens, such as worker compensation and unemployment insurance. This template
will help you keep track of wages and labor hours.

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 Material Prices: Since the cost of materials is prone to fluctuation based on market
conditions and such factors as seasonal variations, cost estimators may look at historical
cost data and the various phases of the buying cycle when calculating expected material
prices.
 Equipment Costs: Equipment costs refer primarily to the cost of running, and possibly
renting, heavy machinery, such as cement mixers and cranes. It’s important to note that the
equipment in use influences how quickly you can complete the project, so the use of
equipment actually impacts many costs outside of those directly associated with running
the equipment.
 Subcontractor Quotes: Most contractors will hire multiple specialist subcontractors to
complete parts of the construction. You add these subcontractors’ quotes to the contractor’s
total estimate. (It can be helpful to use a tracker to collect all the subcontractor
documentation in one place.
 Indirect Costs: Indirect costs are expenses not directly associated with construction work,
like administrative costs, transport costs, smaller types of equipment, temporary structures,
design fees, legal fees, permits, and any number of other costs, depending on the particular
project.
 Profits: Of course, in order to make a profit, the contractor adds a margin on to the cost of
completing the work. Subcontractors do the same when preparing their own quotes.
 Contingencies: Since even the most accurate estimate is likely to be affected by
unforeseeable factors, such as materials wastage, an estimate will usually have a
predetermined sum of money built in to account for such added costs.
 Escalation: Escalation refers to the natural inflation of costs over time, and it’s especially
vital to take into account for long-running projects. Some projects have escalation clauses
that address how to handle this inflation.
 Bonds: An owner will usually require a contractor to arrange for the issuance of a
performance bond in favor of the project owner. The bond functions as a kind of guarantee
of delivery. Should the contractor fail to complete the project according to the terms of the
contract, the owner is entitled to compensation for monetary losses up to the amount
covered by the performance bond.
 Capital Costs: Capital costs are simply the costs associated with establishing a facility.
These include the following: the cost of acquiring land; the cost of conducting feasibility
studies and the pre-design phase; paying the architect, engineer, and specialist members of
the design team; the total cost of construction, which covers not just materials, equipment,
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and labor, but also administrative, permitting, and supervision costs, as well as any
insurance fees or taxes; the cost of any temporary equipment or structures that are not part
of the final construction; the cost of hiring a commissioner; and the cost of inspecting the
structure when it’s near completion.
 Operations and Maintenance Costs: More a concern for the owner than the contractor, one
accounts for operations and maintenance costs during the design phase. Making choices
that lower the total lifetime cost of a building may result in higher construction costs.
Operating costs include land rent, the salaries of permanent operations staff, maintenance
costs, renovation expenses (as needed), utilities, and insurance.
 Variances: Owners will often allocate construction budgets that are larger than cost
estimates because even good, thorough cost estimates have a tendency to underestimate
actual construction costs. This can happen for a number of reasons. For example, wage
increases, which can be difficult to forecast, will make construction costs rise. Seasonal or
natural events, such as heavy rainfall, may call for action to protect construction or restore
the construction site. Large projects in urban areas may face regulatory or legal issues, such
as a demand for additional permitting. And lastly, owners who begin construction without
finalizing the project’s design will over-budget to account for design changes and the
inevitable cost increases that result from throwing a project off schedule.

Profit and Contingency

Two crucial, but difficult to calculate, costs must be added to the estimate in the recapitulation, or
recap, phase of estimating, just prior to submitting the bid. These are profit and contingency. These
topics are rarely addressed in even the best estimating texts on the market today.

The most reasonable explanation for this lack of information is that determining the appropriate
profit and/or contingency is a process that relies more on experience or judgment than on
calculating a quantity and pricing it, such as the cost of concrete. If ten different estimators were
queried, they would most likely say that profit is assigned as a percentage of the cost of the work.
However, the actual decision-making process that led to that particular percentage would be
different from one estimator to the next. The same applies to contingencies.

Although profit is the last number to be added to an estimate (with the exception of a performance
and payment bond premium) before the bid is submitted, we discuss profit before contingency,
since not all projects warrant a contingency.

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Profit

One of the main yardsticks for measuring the success of a construction project is profit. Without
it, the project would be considered a failure. Profit can be loosely defined as the amount of money
left after all of the bills have been paid. It is the necessary component for making a business viable,
fiscally healthy, and capable of growth. Profit is the basis for our business economy. Predicting
the correct amount of profit that a project can support is one of the most difficult tasks for the
construction professional. Too small a profit, and the return does not warrant the risk taken. Too
large a profit, and the bid can be lost to greed. Ideally, the amount of profit to be added should be
the maximum the project can support, but just slightly less than the next bidder’s.

It is generally acknowledged among construction estimating professionals that the cost of

materials, labor, and equipment calculated by the professional contractor’s estimator will be
roughly the same for most contractors bidding the same project. Some items will be higher, and
some will be lower. However, in the end, all costs should be about equal. This also applies to
subcontractors. On bid day, subcontractors submit quotes to the majority of general contractors
bidding a project. Some subcontractors may have been solicited by a particular general contractor,
while others just “cover all the bases” by submitting bids to all of the bidders. If the statement that
“cost is cost” is true, then it could be inferred that adding overhead and profit to the estimate can
be the deciding factor in winning or losing a bid.

In some companies, determining profit is the responsibility of the estimator, while other
contractors consider it to be the domain of senior management or company principals only.
Irrespective of the party assigned this duty, it is clear that by the end of the estimate preparation
the person with the best understanding of the risk involved and the uniqueness of the project is the
estimator. As a result, the estimator is the most likely candidate to contribute to the decision-
making process in determining the profit.

Many texts recommend 10% as the appropriate profit percentage to be added, regardless of the
project. Others vary between 8% and 15% of the cost of the work. While acknowledging that both
percentages may be acceptable for some projects and some contractors, determining profit is
clearly not a one-size-fits-all process.

Factors in Determining Profit

The actual mechanical process of assigning profit to a project can be done in two different ways:

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• As a percentage of the cost of the work

• As a fixed fee based on time

Regardless of the selected method, many factors affect the determination of profit. Some are
tangible, and some less so. As with all portions of the estimate, careful consideration should be
given to the reasons behind each decision. While acknowledging that there are no clear answers
or step-by step procedures for arriving at the correct percentage of profit for a project, there are a
series of considerations that should be reviewed when determining the appropriate amount to
apply. The following sections show the thought process that must take place before the bid is
finalized and should provide guidance for properly assigning the right amount of profit. These
guidelines are not presented in any specific order; their order of importance varies depending on
the individual project.

Risk vs. Reward

All construction projects entail a certain degree of risk, which can manifest itself in many forms.
As a means of offsetting the risk, specific management techniques are used to “share” it. For
example, a general contractor might secure a performance and payment bond from a subcontractor
who has a large share of the work in order to assign some of the risk to another party. However,
from a business standpoint, a project with a high degree of risk requires more management time,
and resources, and generally creates more of a strain on a company’s infrastructure. As a result,
the company should be compensated for the risk endured. In other words, risk must be rewarded,
which, in the construction business, is defined as profit. Profit is the reward for risk assumed,
managed, and triumphed over. The reward should match the risk, supported by the general theory
that the more risk involved, the higher the profit should be. There is no magic formula to calculate
profit as a function of risk, yet almost all reasoning for applying a specific profit to a project can
be traced back to the risk involved. One must carefully evaluate the risk that the project will impose
on the company and define or quantify it in terms that can be used to determine a profit.

Reputation in the Marketplace

All completed projects have an impact on your company’s standing in the marketplace. Many
larger construction firms with marketing departments actively pursue projects that will enhance
the chances of future work or that have high visibility in their sphere of influence. While it does
not take a marketing genius to figure out that a high-profile project will receive more attention,
this may not always be a good thing. Projects that are “built in the newspaper” or under the

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watchful eye of the public can be management nightmares. Along with the normal management
team, damage control specialists may be needed to help keep public opinion and rumors in check,
as these types of projects have a momentum and dynamic all their own.

They can have a tremendous impact on a firm’s reputation and on future business opportunities.
Be sure to consider what the successful completion of the project will mean for the company and
its reputation in the marketplace. Conversely, it is always wise to also speculate on how a failure
would affect the firm’s reputation.

Impacts from the Schedule

A project’s schedule greatly affects the amount of profit that should be added to the estimate.
Projects with durations in excess of a year will affect the company’s balance sheet for multiple
years and will need to carry enough profit for the firm beyond the current year. Losses will affect
more than the current year’s balance sheet as well. It is a recognized fact that projects extending
beyond one year in duration are more difficult to manage because of potential changes in the
marketplace that cannot be accurately predicted at bid time. Wage increases, inflated materials
costs, availability of resources, and the economy in general are some of the variable factors.

Carefully review project durations that appear to be too short. Those with unrealistic schedules
often require infusions of capital and extra management to be completed on time. While these
costs can be accounted for in the estimate, you also need to consider the fact that you may not be
able to perform other work at the same time, which means lost business opportunities.

By the time the estimate has been completed and you are ready to add profit, a construction
schedule should have been developed—and refined. This is necessary to determine project
duration for time-sensitive costs. The schedule should enable the estimator to support or reject the
owner’s timeline under the contract provisions.

Contract Documents and Team Relationships

The level of design development in the bid documents also has an impact on profit. The more
complete the design, the less the risk to the contractor. While the level of design development
affects the amount of justifiable profit, it also may necessitate adding a contingency. (This is
addressed from another perspective later in this chapter under “Contingencies.”) A contractor’s
prior history and working relationship with the architects and engineers for the project are also
critical. Successful relationships with architects, engineers, and even owners play a significant role

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in assigning profit. If the contractor is viewed as part of the “team,” rather than as an adversary, it
will have a direct impact on the profit line. The contractor’s expertise is seen as critical to a
successful project and must be rewarded by allowing reasonable profit.

Contractors involved with architects, engineers, or owners who have a reputation for taking a
“hard-line” approach often add greater profit margins to their estimates to compensate for these
adversarial relationships.

Contract Clauses

Many contractors/estimators interpret the tone of the contract (included in the project manual) as
a precursor of the way the project will be administered. Are the general and supplemental
conditions peppered with unfavorable contract clauses or punitive language toward the contractor?
Does the contract have liquidated damages or penalties of any kind? If so, are they reasonable? Is
there exculpatory language that absolves the owner and architect from responsibility for delay to
the project? While owners often downplay the use of penalty clauses, they are there for a reason.
Should the relationship deteriorate, the owner has the right to exercise his or her contractual rights.
Review the contract clauses carefully, and, if necessary, seek legal advice on specific language
that may be a concern. If the final decision results in bidding the project, make sure that adequate
profit is included to compensate for the risk.

Impact on the Company’s Resources

When determining profit, be sure to address the following questions as they pertain to your
company’s needs and resources.

• Does the company have access to capable subcontractors and suppliers to perform the
work? Are a majority of subcontractors being carried in the bid unknown and untested?
• Does the company have enough of its own labor resources to self-perform work or augment
underachieving subcontractors?
• Does the management staff have the skill sets necessary to administer the project?
• Will the firm have to hire new individuals to supervise or manage the project? If so, would
this be considered additional risk as a result of the unknown factors involved?
• Does the company have the working capital to finance the work between owner payments?
Not having adequate finances to capitalize a project puts tremendous tension on
relationships with subs and suppliers who are key to a successful project.

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• If the project can be administered by the current personnel and infrastructure, what effect
will it have on company morale?
• Will the project tax the company to the extent that no other projects will get their fair share
of attention or management, or worse—that the company will not be able to handle other
projects?

All of these are necessary considerations to determine the impact on the company’s resources,
a key factor in assigning profit.

Repeat Business

Many estimators consider the potential for repeat business when applying profit. This is a very
real and important consideration. Estimators and management teams often reduce their profit
in the hopes that the owner will reward this behavior with repeat business. This is a common
and sound business practice for many sectors of the construction industry. Bear in mind,
however, that too small a profit may not make future projects with a particular owner attractive
for your company. It may also set a precedent for future contracts. For the contractor who does
frequent business with a client, remember that “a contractor is only as good as his last job.”
Reducing profit in hopes of repeat business can often have a negative effect because projects
with insufficient or marginal profit lines are frequently relegated to the “back burner” in favor
of more lucrative ones. This can end the repeat business cycle that you were hoping to develop.

Project Location

Many desirable projects may be outside your company’s normal sphere of influence. While
this does not necessarily mean you should not bid the project, you must acknowledge that there
are inherent problems that come with working outside the typical business area. These include
travel time and related costs, subcontractors’ and suppliers’ abilities to service the location,
and the general unknowns of doing business with new building departments and inspectional
services, as well as public utilities.

Bidding Strategies

Many estimators employ a bidding strategy for winning work, which encompasses a wide
range of techniques meant to provide an advantage, such as tracking the workload of the
competition to determine potential threats. Most contractors strive to create a market niche for
themselves. The theory is that as you do repetitive work, the learning curve disappears, and, as

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a result, the firm becomes more financially successful. In doing so, the company fits into a
niche that is shared by competitors. Contractors who competitively bid projects find
themselves frequently competing against the same firms. The ability to track who is busy and
who is “hungry” is helpful, since the hungry contractor is more of a threat than the busy one.
Other bidding strategies include unique means and methods, such as prefabrication, or
assembly offsite, which often help the bidder be more competitive. A successful bidding
strategy provides an edge over the competition.

Specialization

One-of-a-kind projects with no comparison model warrant an increased profit. While there are
very few projects in the residential/light commercial sector of the construction industry that
have never been done before, unique projects often involve highly specialized contractors,
thereby limiting competition. The fewer the competitors, the larger the profit that can be
expected.

Workload

Frequently, the profit margin is determined by how much work your company is currently
involved in. Contractors with sufficient work add larger profit margins, using the logic that if
more work is going to be added, it will have to be highly profitable, as it taxes the company’s
infrastructure.

Contractors with minimal work under contract are prone to taking projects with little or no
profit, as any cash flow is preferable to a negative profitand - loss statement. While this is true,
accepting low-profit work can be an extremely dangerous practice and is not advocated in any
situation other than the direst of circumstances.

Demographics

By virtue of their locations (and the requirements of the market), certain projects warrant a
larger profit margin. For example, assuming that all other (construction) costs are equal, a
residential project in an area with higher real estate values is typically assigned a larger profit
percentage than a similar residence built in a lower-priced area. Projects far from the beaten
path may also warrant higher profit margins just for the added inconvenience and difficulty
presented.

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Contingencies

A contingency, or adding money to address an unknown condition, is the most misunderstood line
item in an estimate. The estimator should try to anticipate any costs that are not able to be recovered
if discovered. There are two schools of thought from the contractor’s perspective on contingencies.

Approach 1: Always Add a Contingency

Contingencies should be added for costs that cannot otherwise be recovered. Justifications for
contingencies include callbacks that are not the contractor’s responsibility but are sometimes done
to further a firm’s reputation. Consider the residential developer/contractor who repairs damage
caused by an unidentifiable party. Repairing the damage is a good business move and keeps the
client happy. It also portrays the contractor as a reputable businessperson who stands behind
his/her work even when there is a question of who is responsible.

Other scenarios include adding contingencies for “weak” or incomplete documents. It is not
uncommon for architectural services to be kept to a minimum in the design stage of a residence.
The homeowner’s logic may be that if an architect’s services can be kept to designing only the
essentials, a “good” contractor can flush out the details and make the design work. Even the most
conscientious estimator cannot anticipate every condition, unforeseen or otherwise. Again, adding
a contingency to help the homeowner or client over some unexpected costs goes a long way toward
future business. However, it is important to know when enough is enough.

Approach 2: Never Add a Contingency

Some people feel that adding any money to an estimate that is not applied to a tangible, defined
cost or scope of work is a sign of a weak estimate. It is the purpose of an estimate to accurately
anticipate all costs to be incurred in a project. The contract documents, plans, and specifications
act as the basis for the estimate. The drawings represent the quantity, and the specifications
represent the quality. If an item or scope of work in question is not shown on the drawings or called
out in the specifications, it is extra to the contract. Adding money to the estimate for work that is
not defined at bid time is often considered irresponsible and can dramatically affect hard
competitive bids.

How to Decide If Contingencies Are Necessary

Other, more general questions arise as a result of the adding contingencies.

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For example:

• What if the amount of the contingency is insufficient and does not cover the cost of the
work?
• What if the amount is too much and reduces the competitiveness of the bid?
• Does performing work at no cost to the owner under the guise of a contingency create a
dangerous precedent for future uncovered problems?
• Should the owner be aware of the contingency and its amount?
• If the contingency is not spent, is it returned to the owner?

From the owner’s perspective the term contingency is different matter. In setting the project
budget, prior to the award of the contract, it is essential the owner recognize the potential for
changes that can occur during construction. In acknowledging this fact it is in the project’s best
interest that the owner set aside a contingency to pay for changes that inevitably occur. This
contingency is called a management reserve.

Influences on construction costs

Naturally, the costs we’ve detailed in the previous section are anything but consistent from project
to project. In fact, so many factors can influence these costs, that cost estimators recognize that
every project is unique.

One of the primary factors that influences cost is the building site. Waterlogged soils, previous
construction, geological formations and the nature of the rock, native animal species, and the
presence of historical or natural heritage sites are just a few of the things that can affect materials
and labor requirements, delay the issuance of permits, and increase the time needed to complete
the project. Similarly, the location of the construction site relative to economic centers can also be
significant. Contractors may have to transport workers and materials for a long distance if the site
is remote. In a bustling urban area, the wages may be higher. Furthermore, regulatory requirements
may be stricter, and hence more expensive to fulfill or comply with, at some construction sites
than at others. Lastly, certain construction sites require the completion of feasibility or impact
studies, which are likely to prove expensive.

Time-related aspects can also affect costs significantly. Chief among these is the project schedule,
as a compressed, labor-intensive schedule will incur higher costs and rush charges. Shorter
projects, especially those with significant penalties for the contractor’s failure to complete the

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project on time, are also likely to have more expensive insurance. Also, with a project that you
expect to take years to complete, you will almost certainly have to consider fluctuating market
conditions and inflation. Finally, owners inviting bids may notice seasonal variations in bid
amounts, since contractors are busier at some times of the year than at others.

The size and complexity of the project are other major influences on cost estimates. Larger, more
prestigious projects may attract more reputable contractors, or there may simply be few firms
capable of handling the project. Either of these scenarios can escalate project costs.

The quality of plans and specifications are also vital factors, as is the contractor’s relationship with
the project engineer. Construction documents that hint at imprecision will almost certainly result
in higher bids from contractors who want to err on the side of safety. On the other hand, the project
engineer’s reputation can swing costs the other way, since contractors will know that plans drawn
by a reputable engineer are less likely to result in efficiency losses.

Some other factors that affect the project cost include whether a government or quasi-
governmental agency commissions or funds the project, a circumstance which may require
additional paperwork and reporting. Some large projects require the completion of a value-
engineering review before bidding commences. Value engineering, which examines the function-
to-cost ratio of a project, aims at making the design as cost efficient as possible.

Finally, all cost estimates add at least a tenth, and sometimes closer to a fifth, of the construction
total to account for contingencies. Contingencies are allowances held in reserve for unexpected
costs.

The major approaches to construction cost estimation

Cost estimators rely on a number of estimation techniques, which vary in speed and potential
accuracy. The major approaches to cost estimating include:

 Production Function: A production function relates the amount built (the output) to
factors such as materials and labor (the input). So if you want to achieve a certain level of
output (number of square feet built), you look for the optimal input (labor hours per square
foot). Production functions can be quite accurate for forecasting input-output relationships
for projects of a particular type, and there is extensive data to draw from for certain project
types, like schools and hospitals, for example.

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 Stick Estimating: Highly accurate, but incredibly time consuming, stick estimating is the
practice of determining total costs by listing, in order, the costs for every single component
of a job. The sheer amount of time it takes to produce a stick estimate invites errors due to
loss of concentration or carelessness.

 Empirical Cost Inference: This statistical method uses regression analyses to relate the
cost of construction to a model of predictors. The accuracy of this method depends on the
quality of the predictive model, so it calls for a good degree of familiarity with individual
predictors of total construction costs and a knowledge of statistical methods.

 Unit Cost Estimating: Unit cost estimating simply associates unit costs with each
assembly involved in a construction process. It’s fairly quick and accurate, especially if
one has used the assemblies previously, and there is evidence to justify the unit costs for
each assembly.

 Allocation of Joint Costs: You allocate costs that are difficult to assign to individual
project elements by using different mathematical formulas. For example, you can prorate
field supervision proportionally to tasks based on their share of the total basic costs.

The construction cost estimator’s job

Of course, the cost estimator is central to the cost estimation process. Typically a professional who
is familiar with both design and construction and skilled at navigating the myriad costs associated
with construction projects, the cost estimator must have both skill and training.

The U.S. Department of Labor’s Bureau of Labor Statistics says there were 213,500 cost estimators
in the country in 2014, with employment opportunities expected to grow by nine percent over the
next decade. A plurality of these estimators work in the construction industry.

Essential skills for cost estimators include the ability to work quickly with numbers, an in-depth
knowledge of construction, and familiarity with construction documents. On large projects,
multiple specialist cost estimators may be responsible for estimating different aspects of the
project, so a specialization or first-hand experience in constructing certain types of structures can
also be valuable.

Although tertiary education is typically a requirement for cost estimators, first-hand experience
with construction and a knowledge of the contracting landscape are perhaps more essential skills.
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Some estimators are individuals who have risen through the ranks as construction workers. These
experienced construction professionals also know how to negotiate with subcontractors and may
be better able to appreciate the factors that impact estimated amounts.

But as construction has gotten more specialized, professionally trained cost estimators are
increasingly common. A number of qualifications in cost estimation are available, including the
International Cost Estimating and Analysis Association’s Certified Cost Estimator/Analyst
program,the American Society of Professional Estimators’ Certified Professional Estimator
certification, and the American Association of Cost Engineers’ certifications for cost consultants,
cost engineers, and cost technicians. Most certification programs require continuing education and
recertification.

Dedication to continued learning is necessary for all cost estimators, whether certified or not. It’s
key to keep abreast of the construction industry and also to be able to learn and implement evolving
cost estimation methods and software, which we’ll talk about shortly.

In addition, cost estimators must be highly organized and highly attentive to detail. They should
know how to communicate cost information with accuracy and integrity. Moreover, given the
competitive nature of the construction industry, they must maintain confidentiality when
communicating with stakeholders and commit themselves ethically to delivering accurate
estimates despite possible pressures to engage in corner-cutting and expediency.

Best practices in construction cost estimating and what not to do

Today, software applications make cost estimation easier, but the cost estimator’s role remains as
crucial as ever. Some best practices can lead to more accurate estimates and more successful bids.

The cost estimator must follow industry norms and standards for measurement units. He must also
consistently fill out costing-related documents, such as quantity surveys, and follow cost-recording
procedures in a way that makes their work verifiable and easy to handoff to another cost estimator
if necessary. The best way to do this is in a recognized construction classification system, such as
the UniFormat.

Identifying indirect costs is another key part of the cost estimator’s job, and it’s to some extent a
skill developed through experience. The estimator examines contractual terms to see which of
them may impact indirect costs. They’re also responsible for calculating indirect costs and for

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coming up with a way to record these. Determining the level of effort — project work that cannot
be traced to specific components of a work breakdown structure — is also a skill that takes some
developing. Estimating the labor hours necessary for completing project tasks affects the size of
the workforce, workers’ wages, and insurance.

The estimator is responsible for evaluating subcontractors’ bids, particularly taking into account
the subcontractors’ performance on past projects. They will review construction drawings for
constructability and accuracy in representing the project scope. They will assess how the client’s
schedule requirements impact the performance of the project. Their job may involve analyzing
completed estimates for accuracy.

The cost estimator also helps track costs in the field so as to allow the comparison of actual costs
with cost estimates. The idea is to see which areas of the estimate were accurate, which weren’t,
and why. They’re also responsible for determining the impact of change orders, so contractors and
clients can determine if these are feasible. A skilled estimator will provide as much detail as
possible on the impact of change orders.

Ultimately, the cost estimator may have to exercise specialized skills, such as value engineering,
which usually refers to increasing the function-to-cost ratio. Value engineering is usually a
separate study, and it’s critical to structure an estimate so you can swap out costs and assess the
effect of value engineering. If you don’t allocate costs to construction divisions in a format that’s
easy to understand, gauging the impact of value engineering can become much more difficult.

Common pitfalls for construction cost estimators

Experienced cost estimators say you can often avoid common pitfalls by consistently following
standard procedures. One common source of problems is the failure to read the project documents
carefully, which frequently leads to a poor understanding of the project scope and certain
associated costs. Others include forgetting to incorporate costs or entering costs incorrectly. These
issues can be compounded by neglecting to thoroughly check the completed estimate.

Other oversights include the failure to visit the site and the inability to fully understand the site
conditions. As we talked about earlier, a site’s natural conditions and location can impact costs in
a number of ways, and a cost estimator will develop an eye for spotting and asking about these.
This makes site visits imperative.

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Finally, some cost estimators who draw from cost data repositories will fail to adjust costs based
on local conditions or will make arbitrary adjustments without considering prior experience or
quantitative comparisons. Either of these can throw estimates off and make it more difficult for
another cost estimator to verify an estimate.

Cost estimating applications and software

Estimating applications make cost estimates faster and easier to produce, which is crucial in a
construction market that’s immensely competitive. They’re also more accurate than human
estimators working on their own, as long as you use up-to-date cost data. Estimation software has
become a must-have for anyone generating complex construction cost estimates.

Free cost estimating software is available, but it has limited functionality, and it’s not really
suitable for anything but smaller projects. For-purchase software, which can be pricey, is a much
better option for anyone dealing with complex projects because of the functionality and features it
can offer. Here are a few of the benefits of for-purchase software:

 Cost-Related Inputs and Processes: Estimating software can offer access to cost
databases, calculate taxes and the costs of labor and materials, allow estimators to adjust
prices to local contexts, feature standard-size room lists, as well as item or activity lists,
and integrate with accounting software. Some offer worksheets for specific trades and
calculators for standard costs.

 Generating Estimates: Estimating software can perform measurements and take-offs,

count objects, allow estimators to mark up construction drawings, and generate bills of
quantities.

 Documentation: Estimating software offers templates for proposals and cover letters,
generates proposals and cost reports, and maintains records of past projects.

 Other Features: Some software offers support for macros, online collaboration, and the
ability to integrate with computer-aided design files.

New aspects of construction cost estimating

Construction cost estimating continues to evolve as design, building methods, and materials
change. Some trends that impact cost estimating today include:
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 Building Information Modeling (BIM): A building information model is a digital model

of a structure and all its characteristics and dimensions. From the design to the construction,
commissioning, and maintenance of a building, all participants can use the model. As such,
there’s an increasing demand for cost estimating to become an aspect of BIM, though this
opinion has not been without challenges. The main criticism of cost estimating in BIM is
that cost estimators, with some justification, have less confidence in the level of detail of
BIM designs. That lack of specificity can lead to substantial inefficiencies and reworking
of estimates.
 Sustainability and LEED Certification: Currently something of a hot topic in
construction, LEED certification is a point system for rating buildings based on their
environmental performance. The role of an estimator in projects seeking to obtain LEED
certification involves both calculating the cost of scoring LEED points and communicating
these to clients. These include not just direct costs (using environmentally friendly
materials, for example), but also increased administrative costs for ensuring compliance
with the LEED standards. Therefore, estimators in LEED projects should be involved
during the construction design phase, so they can contribute information about costs
associated with specific LEED points.
 Lean Construction and Cost Control: Lean construction, a fairly new approach, draws
from the principles of lean management, which is the systematic effort to reduce waste
without affecting productivity. Studies indicate that applying lean principles in
construction projects results in significant cost savings. As such, an understanding of lean
principles is a good asset for cost engineers who apply principles of value engineering to
construction projects.

No matter the size or type of construction project, cost estimating is only one piece of the
puzzle. With multiple stakeholders, hundreds (if not thousands!) of details, and tons of
documentation, construction projects can be complex and difficult to manage. Especially when
just one missed detail can result in huge costs due to rework or delays. That’s why you need a
tool that can help manage all the parts of the project, including cost estimating.

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